Econ 180 Final

Front 1

Four factors of production

Back 1

land, labor, capital, entrepreneurial talent

Front 2

GNP

Back 2

produced by factors of production and sold on the market in a given time period.
-important to only count final goods and services (the price of intermediate goods is factored in to the price)
-GDP and GNP are not that much different in practice, tracks national income more closely

Front 3

Formula for GNP (practical way)

Back 3

Income approach
y(national income)= wages (labor)+interest (capital)+rents(land)+profit (entrepreneurs)

Front 4

Expenditure approach for calculating GNP

Back 4

Y= C+I+G+CA

Front 5

Current account

Back 5

deficit if CA<0
Surplus if CA >0

Front 6

Problems with CA deficit

Back 6

using funds for consumption rather than investment
Using funds unproductively (private investors or the government)
High debt- difficulty making payments
May undermine foreign investor's confidence

Front 7

Problems with CA surplus

Back 7

collecting payments from the rest of the world
may be targeted by protectionist measures in trade

Front 8

National Savings

Back 8

the portion of the output, Y, that is not devoted to household consumption or government purchases.
In a closed economy, saving always equals investment (country can only increase its wealth by accumulating new capital)
Sn=Y-(C+G)

Front 9

Private Savings

Back 9

disposable income that is saved rather than consumed and can take three forms.
Investment in domestic capital (I), purchases of wealth from foreigners (CA) and purchases of government issued debt (G-T)
Sp=Y-T-C

Front 10

Disposable income

Back 10

National income,Y, less the net taxes collected from households and firms by the government

Front 11

Government Savings

Back 11

Sg=T-G (income minus spending)

Front 12

Savings in a Closed Economy

Back 12

Sn=I or I=Sp+Sg (national savings)
closed economies can only rely on national savings as a source of investment

Front 13

Open Economy

Back 13

Sn-CA=I or I=Sp+Sg-CA
open economies do not have to sacrifice consumption to invest. They can run a CA deficit (borrow) while they are building up productive capacity, and later pay back lender countries

Front 14

Sources of CA deficit

Back 14

CA=Sp+Sg-I

Front 15

Balance of Payments

Back 15

accounts that track payments and reciepts from foreigners
every international transaction must go in to the BOP twice, once as a credit and once as a debit

Front 16

Current Account Transaction

Back 16

Imports and Exports entered directly in to the current account (physical)

Front 17

Financial account transactions

Back 17

purchase or sale of financial assets. capital inflow and outflow.
Capital inflow- credit (foreigners increase holdings of domestic assets)
Capital outflow- debit (foreigners reduce holdings of domestic assets)

Front 18

Sum of BOP transactions

Back 18

BoP=CA+FA=0

FA=NRFA+OSB
BoP= CA+ NRFA+OSB

Front 19

OSB

Back 19

official settlement balance= sum of current account balance, the capital account balance, the nonreserve portion of the financial account balance and statistical discrepancy
indicates payment gap that official reserve transactions need to cover

Front 20

OBS capital inflow

Back 20

foreigners increase holdings of US assets
US residents increase holdings of US assets
Foreigners reduce holdings of foreign non dollar assets
Us residents reduce holdings of foreign assets

Front 21

OSB capital outflow

Back 21

Foreigners reduce holdings of US assets (withdrawal of $from a bank account)
US residents reduce holdings of US assets (sell dollars, buy euros)
Foreigners increase holdigns of non dollar assets
US residents increase holdings of foreign assets

Front 22

BoP deficit and surplus

Back 22

If CA+NRFA is less than 0- bop deficit
if CA+NRFA is greater than 0- surplus

Front 23

Exchange Rate

Back 23

- how many units of currency D you get for 1 unit of F currency
- the "price of F currency expressed in D terms"
-D depreciates and F appreciates if Ed/f increases