W1P5 - NotebookLM Flashcards
What does the balance of payments contain?
The balance of payments contains the current account, the financial account, the capital account, and errors/omissions.
What does the current account consist of?
The current account consists of the trade balance (exports minus imports) and the income account (net international investment income).
What does a deficit in the current account and a surplus in the financial account indicate?
It indicates an inflow of capital.
What happens when a country runs persistent trade balance deficits?
It can lead to accumulating foreign debt.
How might an appreciating exchange rate affect the NIIP (Net International Investment Position)?
An appreciating exchange rate might decrease the trade balance, leading to a decline in NIIP.
What is Absolute Purchasing Power Parity (PPP)?
The idea that the same good should cost the same in different countries when adjusted for exchange rates.
What is Relative Purchasing Power Parity (PPP)?
The change in the nominal exchange rate is equal to the difference in the changes in the price levels between countries. There is more empirical evidence for relative PPP than there is for absolute PPP.
What is arbitrage?
Buying a good in one country and selling it in another to make a profit. It underlies PPP and primarily works with tradable goods.
What is the Harrod-Balassa-Samuelson effect?
It explains why non-tradable goods are more expensive in richer countries due to productivity increases in the tradable goods sector driving up wages in the non-tradable goods sector.
