ECON 437 FINAL Prep 2 | 100% Correct Complete
Solutions
Gross National Product (GNP)
value of all final goods and services produced by a nation's factor of production in a given time
period
Net Unilateral Transfers (NUT)
payments from one country to another that do not correspond to the purchase of any good,
service, or asset
current account balance
CA = EX - IM = Y - (C + I + G)
when production > domestic expenditure,
exports > imports
imports: current account > 0
trade balance > 0
net foreign wealth is increasing
when saving > investment, what happens to the current account?
double entry bookkeeping
an international interaction that involves two parties. each transaction enters the account twice
(once as a credit (+) and once as a debit (-)
credit
,any transaction resulting in a receipt from foreigners
debit
any transaction resulting in a payment to foreigners
3 accounts in balance of payments
current account: accounts for flows of goods and services (imports and exports)
financial account: accounts for flows of financial assets (financial capital)
capital account: flows of special categories of assets: typically non-market, non-produced, or
intangible assets like debt forgiveness, copyrights, and trademarks
financial inflow and outflow under financial account
financial inflow:
foreigners loan to domestic citizens by buying domestic assets (foreigners buy tesla stock)
financial outflow:
domestic citizens loan to foreigners by buying foreign assets (us citizens buy unilever stocks)
you import a fax machine from a european company. the company deposits your check in a
us bank in the us bop table through
current account, goods import
financial account, asset sale
you buy lunch in france and pay with your credit card. the french restaurant receives the
payment from your credit card company through
current account, service import
financial account, asset sale
, an american company exports machinery to japan. the japanese importer promises to pay
value of good in 3 months. how does this get store on the bop table
current account, goods export
financial account, asset purchase
depreciation
decrease in the value of a currency relative to another currency.
a depreciated currency is less valuable and can be exchanged for a smaller amount of foreign
currency
appreciation
increase in the value of a currency relative to another currency.
an appreciated currency is more valuable and can buy more foreign produced goods that are
dominated in foreign currency
spot rates
exchange rates for currency exchanges "on the spot" or when trading is executed in the present
forward rates
exchange rates for currency exchanges that will occur in the future
rate of return
the percentage change in value that an asset offers during a time period
real rate of return
inflation-adjusted rate of return
Solutions
Gross National Product (GNP)
value of all final goods and services produced by a nation's factor of production in a given time
period
Net Unilateral Transfers (NUT)
payments from one country to another that do not correspond to the purchase of any good,
service, or asset
current account balance
CA = EX - IM = Y - (C + I + G)
when production > domestic expenditure,
exports > imports
imports: current account > 0
trade balance > 0
net foreign wealth is increasing
when saving > investment, what happens to the current account?
double entry bookkeeping
an international interaction that involves two parties. each transaction enters the account twice
(once as a credit (+) and once as a debit (-)
credit
,any transaction resulting in a receipt from foreigners
debit
any transaction resulting in a payment to foreigners
3 accounts in balance of payments
current account: accounts for flows of goods and services (imports and exports)
financial account: accounts for flows of financial assets (financial capital)
capital account: flows of special categories of assets: typically non-market, non-produced, or
intangible assets like debt forgiveness, copyrights, and trademarks
financial inflow and outflow under financial account
financial inflow:
foreigners loan to domestic citizens by buying domestic assets (foreigners buy tesla stock)
financial outflow:
domestic citizens loan to foreigners by buying foreign assets (us citizens buy unilever stocks)
you import a fax machine from a european company. the company deposits your check in a
us bank in the us bop table through
current account, goods import
financial account, asset sale
you buy lunch in france and pay with your credit card. the french restaurant receives the
payment from your credit card company through
current account, service import
financial account, asset sale
, an american company exports machinery to japan. the japanese importer promises to pay
value of good in 3 months. how does this get store on the bop table
current account, goods export
financial account, asset purchase
depreciation
decrease in the value of a currency relative to another currency.
a depreciated currency is less valuable and can be exchanged for a smaller amount of foreign
currency
appreciation
increase in the value of a currency relative to another currency.
an appreciated currency is more valuable and can buy more foreign produced goods that are
dominated in foreign currency
spot rates
exchange rates for currency exchanges "on the spot" or when trading is executed in the present
forward rates
exchange rates for currency exchanges that will occur in the future
rate of return
the percentage change in value that an asset offers during a time period
real rate of return
inflation-adjusted rate of return
