Unit 7 Notes

A BOP "Chart" (4/9/15)

Notes (4/13/15)

BOP: Balance of Payments

Official Reserves: 

• Foreign currency holding of U.S Federal Reserve System
• When there is a balance of payments surplus the Fed accumulates foreign currency and debits the balance of payments 
• When there is a balance of payments deficit the Fed depletes its reserves of foreign currency and credits balance of payments 
• Official Reserve 0 out the BOP

Active v. Passive Official Reserve:

• U.S is passive in its use of official reserves. It does to see to manipulate dollar exchange rate 
• People's Republic of Change is active in its use of official reserves. It actively buys and sells dollars in order to maintain a steady exchange rate with U.S

Notes (4/14/15)

Trade Deficit: 

• Imports > Exports

Trade Surplus:

• Exports > Imports 

Good Exports + Good Imports

Current Account: 

• Balance of trade + net investments + net transfers 

Capital Account:

• Foreign purchases of U.S assets + U.S purchases of assets abroad 

Official Reserve: 

• current account + capital account

Calculate Goods & Services:

• Good imports + service imports 

Notes (4/27/15)

Purchasing Parody:

• When currency rates are set by international markets, changes would be based on actual currency power of currencies 
• Ex.) If U.S $ to Europe is $1.50 to 1 then each $1.50 will buy 1 Euro. However, if item in U.S cost $1.50 and then cost more/less 1 Euro, the parody is lost. Markets will adjust quickly in floating rates or pressure for 0 will occur in fixed rates 

Why do we exchange currencies?

1. To invest in other countries; stocks and bonds 
2. Sell exports and buy imports 
3. To build factories or stores in other markets 
4. Hold currencies in bank currencies for further imports, exports, or business loans 
5. Speculate on currency values 
6. Control excessive imbalance; balance will come from BOP 

Absolute Advantage v. Comparative Advantage (4/29/15)

Absolute Adv.:

• Individual: exists when a person can produce more of certain goods/services then someone else in same amount of time 
• National: exists when a country can produce more of a good/service then another country can in the same amount of time 
• Faster, more efficient

Comparative Adv.:

• Individual/National: exists when an individual/nation can produce a good/service and lower opportunity cost then another individual/nation
• Low opportunity cost

Input Problems:

• The country/individual that uses the least amount of resources, land, or time has the absolute advantage 

Output Problems:

• The country/individual that can produce the most has the absolute advantage. The country/individual has lowest opportunity cost has comparative advantage
• Deals with production

Comparative:

• Input- is/not
• Output- not/is

Absolute:

• Input- Less
• Output- More