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Global
Global Mid Term
| Question | Answer |
|---|---|
| Current Account | Exports and imports of goods and services |
| balance of payments | current account + capital account transactions of financials assets/instruments |
| How to fund negative trade balance | sell assets/borrow drives down future C |
| Key to growth | output |
| how to enhance output | labor, capital, total factor productivity |
| globalization is a force | mitigate bad maximize good |
| GDP | C+I+G+NE |
| Challenges to GDP | underground economy double counting nominal vs. real income disparity happiness- leisure, childcare innovation pollution |
| What is CPI? | compares values across time basket of goods defines inflation rate- cost of living used for wage/gov't pmt adjustments |
| How do you calculate CPI? | basket $/ basket $ of base year *100 |
| Issues with CPI | substitution effects missing products (ipod) quality shifts |
| Theories of trade | mercantilism absolute advantage comparative advantage new trade |
| absolute advantage | Adam Smith more goods produced using the same resources |
| comparative advantage | David Ricardo produce only highest efficiency goods and trade for remainder tariffs can be imposed until > relative adv. |
| mercantilism | maintains trade surplus amass silver and gold government intervention via taxation, tariffs focus on finished goods wars, colonization labor and capital thrive; tfp suffers |
| three currency theories | floating pegged managed/dirty |
| floating currency | forex market determines value |
| pegged currency | fixed to reference country's currency |
| managed/dirty currency | floating with some central bank intervention |
| expected rate of exchange b/w countries | foreign price/ domestic price compare to actual exchange to determine overvalue or undervalue |
| Law of one price | expected rate of exchange equals actual rate otherwise, arbitrage must be identical good |
| Big Mac arbitrage example | Buy for 12.5 yuan Sell for $3.54 Convert using exchange rate of 6.14 21.73-12.5=9.23 yuan |
| When does LOOP not hold | services goods that are difficult to trade |
| what are the risks to foreign exchange? | transaction translation economic |
| transaction risk to forex | timing |
| translation risk to forex | exchange rate for financial reporting of foreign subsidiary |
| economic risk to forex | firms future affected by exchange rates |
| ways to mitigate forex risk | spot exchange forward contract currency swap |
| spot exchange | rate of conversion on particular day supply and demansd |
| forward contract | parties agree to exchange currency at specific date int he future |
| currency swap | simultaneous purchase and sale for 2 different dates |
| recessions | prices are sticky, so C decreases aggregate supply slopes leading to lower prices and less quantity if agg demand falls during recession, so does output,employment lower I=lower C= lower I... |
| Pure market economy | Hayek supply and demand government encourages competition |
| Mixed economy | Keynes government intervenes takes over troubled firms |
| command economy | marx planned by gov't all business owned by state |
| three types of economies | pure market mixed command |
| Two types of financial policy | fiscal monetary |
| fiscal policy | gov't spending taxes budget deficits |
| multiplier myths | spending doesn't employ everyone diminishing returns;decreased impact waste LT spend up;debt up; inflation up opportunity costs employs already working people |
| monetary | discount rate reserve requirement open market operations |
| PQ=MV | price quantity supply of $ velocity PQ= notional GDP |
Created by:
ranttila
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