ECON 105 Lecture Notes - Lecture 10: Capital Outflow, Purchasing Power Parity, Shortage

• School: Simon Fraser University
• Department: Economics
• Course: ECON 105
• Professor: Eldar Sehic

Document Summary

Records the country"s transactions with the rest of the world. Net receipts on income earned on assets (nr): Bop = nx + nr + kf + ofa = 0. If bop > 0: it"s a bop surplus, which implies that ofa < 0 (country makes more purchases than sales of foreign currency) If bop < 0: it"s a bop deficit, which implies that ofa > 0 (country makes more sales than purchases of foreign currency) Exchange rate (e): price of foreign currency (fc) e. Changes in fcd: (not due to changes in e) If imports or if there is capital outflow, then fcd moves right e e2 e1. Changes in fcs: (not due to changes in e) If exports or if there is capital inflow, then fcs moves right e e1 e2. Determined by central bank buying and selling fc. Fixing e above at efix: e efix.