Econ 360 Terms

Front 1

Consequences of Import Substitution

Back 1

1. Capital invested in inefficient industry.
2. Domestic market not large enough and develops excess capacity
3. Policy will raise P of import competing goods and draw resources toward import competing industries.
4. Strong incentive to use capital intensive techniques regardless of factor endowment

Front 2

Economic growth with P fluctuation

Back 2

P fluctuation-> Fluctuations in foreign currency earnings-> Retardation of real growth and investment

Front 3

ICP

Back 3

International Commodity Program. several ICA's, industrial countries are opposed.

Front 4

current account formula and definition

Back 4

S-I=X-M. Includes G and S items.

Front 5

Balance of trade

Back 5

exports minues imports of merchandise

Front 6

Balance on current account

Back 6

balance on goods, services, and income flows minus unilateral transfers.

Front 7

Official reserve transactions balance (or overall balance)

Back 7

private inpayments minus outpayments on goods, services, income flows, unilateral transfers, and nonofficial capital transfers. Under a freely floating exchange rate, it would be zero. Under a managed float, it is balanced by changes in official reserves.

Front 8

appreciation and competitiveness

Back 8

dollar depreciation makes foreign goods more expensive in terms of dollars. Americans will buy fewer foreign goods. Because each such good now sells for more American dollars, Americans will spend fewer dollars abroad only if D for the goods is relatively elastic.

Front 9

benefits of FDI for host country

Back 9

1. Technological progress
2. Managerial skills
3. Exmployment
4. infastructure
India and China are example of how growth can expand

Front 10

losses for source country

Back 10

1. revenue loss to government
2. loss of capital
3. unemployment
4. lower labor productivity
5. could raise labor productivity depending on type of FDI, if foreign investment is in extraction industry.

Front 11

other name for market price

Back 11

arms length price

Front 12

transfer price

Back 12

price charged by one subsidiary for sales to another subsidiary

Front 13

why invest abroad

Back 13

profit motive, generate revenue and expand sales, reduce costs,

Front 14

costs of FDI

Back 14

1. the need to obtain raw materials abroad
2. lower labor costs

Front 15

overshooting

Back 15

short run response to a disturbance is greater than the long run response

Front 16

Marhsall-Lerner

Back 16

the sum of a country's import demand elasticity and foreign demand elasticity for the country's exports must exceed for devaluation to improve the country's current account

Front 17

sterilized intervention

Back 17

currency intervention that does not affect the money supply

Front 18

triangular arbitrage

Back 18

currency-exchange-exchange-exchange back for profit

Front 19

role of the US dollar

Back 19

1. Reference role for exchange rates
2. Main intervention currency for managed float schemes
3. official reserve currency- central banks require dollar reserves to intervene in their respective markets.
4. vehicle currency- if there is no market between two currencies
5. transaction currency for the private sector.

Front 20

Incompatible trinity

Back 20

1. A fixed exchange rate
2. International transactions (especailly capital movements) free of gov't control.
3. Monetary policy independent of trading partners