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Lecture

ECON332 Lecture Notes - Gross Domestic Product, The Foreign Exchange, Capital Account


Department
Economics
Course Code
ECON332
Professor
Sharif Khan

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INTERNATIONAL FINANCE
ECONOMICS 332
Ingrid Liu
ABSTRACT
An analysis of the main issues in international finance. Topics include international
borrowing and lending, intertemporal gains from trade, current account and balance of
trade movements, the determination of exchange rates and foreign exchange markets.

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CHAPTER 13
NATIONAL INCOME ACCOUNTING AND THE BALANCE OF PAYMENTS
Four aspects of international economics
I. Unemployment
II. Saving
III. Trade imbalances
IV. Money and price level
Two tools in international trade
I. National Income Accounting
Records all expenditures that contribute to country’s income and output
II. Balance of Payments Accounting
Keeps track of changes in country’s indebtedness to foreigners
Keeps change of fortunes of its export and import-competing industries
Shows connection between foreign transactions and national money supplies
THE NATIONAL INCOME ACCOUNTS
Gross National Product (GNP)
Value of all final G&S produced by the country’s factors of production and sold on market in a
given time period
Different expenditures that make up GNP
I. Consumption: amount consumed by private domestic residents
II. Investment: amount put aside by private firms to build new plant and equipment for
future use
III. Government Purchases: amount used by government
IV. Current Account Balance: amount of net exports of G&S to foreigners
Nation’s income = Nation’s output
National Product and National Income
GNP over a time period must equal its national income (income earned in period by factors of
production)
One person’s output is another person’s income
Capital Depreciation and International Transfers
More accurate measure of national income is GNP adjusted with:
I. Depreciation (economic loss due to tendency of machinery and structures to wear out
as they are used) subtracted from GNP
GNP Depreciation = Net National Product (NNP)
II. Unilateral transfers changes national income (to and from other countries ex. Foreign
aid sent to expatriate countries)
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