Exam 1 Flashcards
GDP =
C + I + G + X - M
or
GNE + TB
C
consumption goods, purchased by households
I
investment goods, purchased by business and government
G
government provided consumption services
X
exports, purchased by foreigners
M
imports, purchases from foreigners
Personal consumption expenditures
C, household purchases of goods and services, covers all items, regardless of where they were produced
Domestic investment
I, business and government purchases of new equipment, software and structures, also includes new home construction, measures additions to domestic capital stock, regardless of residency status of owner, does not include investment in human capital (education)
Government consumption expenditures
G, government provision of goods and services (national defense, public schools, etc), not outlays–does not include transfer payments (social security, welfare)
Exports and imports (X-M)
includes services (banking, education, tourism, etc.) and goods in an intermediate stage of production
GNI
calculated as GDP plus income received from abroad minus incomes paid to foreigners
GNE =
C + I + G
GNI =
GDP + IR - IP
or
GNE + CA
CA =
TB + (IR - IP)
or
S - I
S =
GNI - C - G
S - I =
CA or KO - KI or (X - M) + (IR - IP)
Current Account
Net of exports of goods and services and income receipts and imports of goods and services and income payments
Primary income receipts
also same for payments
investment income --direct investment income --portfolio investment income --other investment income compensation to employees
Financial Account
Net US acquisition of financial assets (net increase in assets/ financial outflow) and Net US incurrences of liabilities (net increase in liabilities/ financial inflow)
acquisition of assets and incurrence of liabilities
direct investment assets portfolio investment assets --equity and investment fund shares --debt securities other investment assets --currency and deposits --loans and other
IR
income received from abroad (income receipts)
IP
income payments to foreigners
X + IR + KI = M + IP + KO
sources of funds must equal uses of funds
when you buy something, you must pay for it
when you sell something, you will be paid for it
X - M =
(IP - IR) + (KO - KI)
What four asian countries were hit the hardest in the 1997-98 crisis?
Indonesia Thailand South Korea Malaysia *Hong Kong
crisis of ‘97-98
Financial deregulation leads to large foreign capital inflows, fuels a credit boom and bubbles in real estate and stock markets
sudden panic among foreign investors leads to cutoff of foreign lending, major currency depreciations
Factors responsible for e. asian crisis
moral hazard/ US and IMF bailouts
lack of transparency, regulation, financial infrastructure in countries that opened up their capital account
loosely pegged exchange rates
contagion/ capital flight
not large government budget deficits or debt
Making capital flows safer
financial infrastructure (info disclosure, accounting standards, financial law, bank supervision and regulation) sound fiscal and monetary policy sound exchange rate policy selective capital controls (foreign direct investment is stable, bank lending is unstable)
S =
(GNI - T - C) + (T - G)
Cases of KO > KI
mature economies low MPK
demography
culture
policy: government directed outflow
Cases of KO < KI
investment boom or high MPK
–US railroad and IT booms
Less developed countries (lack capital)
Newly liberalized countries (educated, obsolete K)
impediments to global market equilibrium
(international transfer of purchasing power)
imperfect substitutes
nontraded goods
Welfare analysis of global capital flows
allocative efficiency (+) multinational corporations and technology transfer (+) portfolio diversification (+) international capital flows and financial crisis (-)
