Globalisation and European integration summary
Table of contents
1. Introduction ..................................................................................................................................... 2
1.1 Balance of payment ....................................................................................................................... 2
1.2 National accounts of open economies .......................................................................................... 4
2. Real foreign trade theory and policy ............................................................................................... 7
2.1 Theories of international trade ..................................................................................................... 7
2.2 Effects of international trade ...................................................................................................... 15
2.3 Foreign trade policy – aims, instruments and effects ................................................................. 16
2.4 International factor movements ................................................................................................. 18
3. International monetary economics ............................................................................................... 20
3.1 The foreign exchange market and the exchange rate................................................................. 20
3.3 Foreign exchange rate systems and the international monetary system ................................... 23
3.4 Optimum currency areas ............................................................................................................. 25
4. Important institutions for international trade .............................................................................. 25
Possible exam questions:
1. Questions: National account of open economies ......................................................................... 27
2. Questions: Trade policy ................................................................................................................. 27
3. Questions: Financial flows ............................................................................................................. 30
4. Questions: Theories of international trade ................................................................................... 30
5. Questions: Foreign trade policy .................................................................................................... 31
,1. Introduction
1.1 Balance of payment
Definition The balance of payments (BoP) is used to capture all economic transactions which take
place among residents and foreigners within a particular period of time in a systematic manner.
Major characteristics of the Balance of Payments:
- Flows (period of time), no stocks (point in time) -> “balance” misleading
- Several sub-balances* -> depend on type of transaction
- Double entry bookkeeping -> each transaction is recorded twice
- Methodological framework internationally harmonised -> comparability
* the two major sub-balances are: the current account (CA)and the financial account (FA).
Current account (CA) – Transactions with direct impact on domestic income
Financial account (FA) – International financial transactions of private and public actors
Domestic point of view – double entry bookkeeping of the current account balance and financial
account balance
,CA + FA = 0
Simplified structure:
Balancing within economic interpretation:
, 1.2 National accounts of open economies
Defenition National account (NA):
Three domestic sectors -> 1. Households, 2. Corporations, 3. Government
Economic cycle:
Closed economy:
Open economy:
Table of contents
1. Introduction ..................................................................................................................................... 2
1.1 Balance of payment ....................................................................................................................... 2
1.2 National accounts of open economies .......................................................................................... 4
2. Real foreign trade theory and policy ............................................................................................... 7
2.1 Theories of international trade ..................................................................................................... 7
2.2 Effects of international trade ...................................................................................................... 15
2.3 Foreign trade policy – aims, instruments and effects ................................................................. 16
2.4 International factor movements ................................................................................................. 18
3. International monetary economics ............................................................................................... 20
3.1 The foreign exchange market and the exchange rate................................................................. 20
3.3 Foreign exchange rate systems and the international monetary system ................................... 23
3.4 Optimum currency areas ............................................................................................................. 25
4. Important institutions for international trade .............................................................................. 25
Possible exam questions:
1. Questions: National account of open economies ......................................................................... 27
2. Questions: Trade policy ................................................................................................................. 27
3. Questions: Financial flows ............................................................................................................. 30
4. Questions: Theories of international trade ................................................................................... 30
5. Questions: Foreign trade policy .................................................................................................... 31
,1. Introduction
1.1 Balance of payment
Definition The balance of payments (BoP) is used to capture all economic transactions which take
place among residents and foreigners within a particular period of time in a systematic manner.
Major characteristics of the Balance of Payments:
- Flows (period of time), no stocks (point in time) -> “balance” misleading
- Several sub-balances* -> depend on type of transaction
- Double entry bookkeeping -> each transaction is recorded twice
- Methodological framework internationally harmonised -> comparability
* the two major sub-balances are: the current account (CA)and the financial account (FA).
Current account (CA) – Transactions with direct impact on domestic income
Financial account (FA) – International financial transactions of private and public actors
Domestic point of view – double entry bookkeeping of the current account balance and financial
account balance
,CA + FA = 0
Simplified structure:
Balancing within economic interpretation:
, 1.2 National accounts of open economies
Defenition National account (NA):
Three domestic sectors -> 1. Households, 2. Corporations, 3. Government
Economic cycle:
Closed economy:
Open economy:
