Unit 7 Notes: 4.29.2015

Absolute Advantage:
Individual: exists when a person van produce more of a certain good than someone else in the same amount of time
National: exists when a country can produce more than another country can in the same amount of time.

Comparative:
Exists when one can produce goods at lower opportunity than another.
The country or individual. That uses least amount of resources, land, or time has the absolute advantage. 
One can produce the most with less opportunity cost has comparative advantage.

Absolute advantage: faster more efficient.
Comparative: lower opppr. cost

Unit 7 Notes: 4.27.2015

Purchasing Power Parity: NEED

Ex: if the dollar to the euro is a $1.50 / 1€ then each dollar fifty will buy 1 euro. However if an item in the US cost a dollar fifty and cost more or less than 1€ than the parity is lost. Markets will adjust quickly and floating rates or pressure for change will occur for fixed rates.

Invest in other countries. 
Sell exports and buy imports
Build factories or store in other markets
Hold currencies in bank accounts for future imports, exports or business loans
Speculate on currency values
Control excessive imbalances.

Unit 7 Notes: 4.15.2015

Foreign Exchange:
Buying and selling of currency
Exchange rate is determined in foreign currency markets
Exchange rates are a function of supply and demand for currency.
An increase in supply of one currency will make it cheaper.

Unit 7 Notes: 4.14.2015

Balance of Trade:
Good and Services imports - Goods and Services exports

Trade deficit: 
Imports > Exports
Trade Exports:
Imports < Exports

Current Account:
Balance of Trade + Balance of Payments + Net Transfers

Capital Account:
Foreign purchases of US assets + US purchases of assets abroad

Official Reserves:
Current Account + Capital Account

Goods and Services:
Goods Imports + Service Imports

Unit 7 Notes: 4.13.2015

Official Reserves: 
Foreign currency holdings of the United States 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 credit balance of payments.
The official reserves zero out the balance of payments

Active vs Passive Official Reserves.
United States is passive in its use if official reserved. It does not seek to manipulate the dollar exchange rate
The People's Republic if China us active in its use of official reserves. It buys and sells dollars in order to maintain a steady exchange rate with the US.

Unit 7 Notes: 4.9.2015

Balance of payments:

Measure of money inflows and outfows between the United States and the Rest of the World.

Inflows are called Credits
Outflows are called Debits

Every transaction in the balance of payments is recorded twice in accordance with standard accounting practice.

Current Account:
Balance of trade or net exports
Export of G/S - Import of G/S
Exports create a credit to the balance of payments
Imports create debit to balance of payments

Net Foreign Income:
Income earned by US owned foreign assets - income paid to foreign held US assets

Net Transfers: (tend to be unilateral)
Foreign aid is a debit to the current account

Capital/Financial Account:
Balance of capital ownership
Includes of both real and financial assets
Direct investment in the US is a credit to the capital account
Direct investment by US firms/individuals in a foreign country are debits to the capital account
Purchase of foreign financial assets represents a debit to the capital account
Purchase of domestic financial assets by foreigners represents a credit to the capital account

Current account and capital account should zero each other out

Unit 5&6 Notes: 4.7.2015

Supply side: belief that AS curve will determine levels of inflation, unemployment, and economic growth. 
To increase the economy, the AS curve should shift to the right. Which will always benefit the company first. 
Focus on marginal tax rates: amount paid on the last dollar earned or on each additional dollar earned. 
By reducing marginal tax rate, supply-sider believe that you will encourage more people to work longer and forgo leisure time for extra income. 
Support policies that promote GDP along with the current system of transfer payments provides disincentives to work, invest, innovate, and undertake euntrepenure ventures.

Laffer curve: trade off between tax rates and government revenue. Used to support that supply side argument.

Impact of tax rates on incentives to work save and invest are small.

Tax cuts incease demand which can furl inflation, and causes demand to exceed supply. Economy is actually located in the curve is difficult to determine.