BBG 101 Lecture Notes - Lecture 15: Recession, Australian Dollar, Ceteris Paribus

• School: Tunxis Community College
• Department: Business – General
• Course: BBG 101
• Professor: Smith

Document Summary

Relationship between cad and kas (current account deficit and capital account deficit) For australia, our domestic overspending" on g and s is thus financed by sales of our domestic assets. For a cas country like china, the surplus on current account is used to buy foreign assets. The result is kad (ki ko is negative, and nfi is positive). But for the world as a whole, Nfi is the purchase of foreign assets by domestic residents minus the purchase of domestic. Bp = 0 and ca = ka. assets by foreign residents. An alternative, inverse method of expressing this exchange rate is to say usd 1. 00 = aud. This is the price of one unit of foreign currency (the us dollar) expressed in terms of the domestic currency (the australian dollar). We use the first method the value of one unit of domestic currency expressed in terms of a foreign currency.