Ch 32 macroeconomics of an open economy
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macroeconomics of an open economy
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Ch 32 macroeconomics of an open economy
- 1. Chapter 32 The Macroeconomics of Open Economies
- 2. Key Terms closed economy open economy exports imports net exports trade balance trade surplus trade deficit balanced trade net capital outflow nominal exchange rate appreciation depreciation real exchange rate purchasing power parity
- 5. ARM Holdings Wolfson Marvel Skyworks CSR Linear Technologies NXP National Semiconductor Sharp Samsung Toshiba Infineon Broadcom Numonyx Micron Dialog Semiconductor Texas Instruments STMicroelectronics Silicon Storage RF Microdevices Cirrus Logic U.S. U.K. Germany Korea Japan Taiwan China Saudi Arabia
- 6. 450,000 iPhones and cost about $242,000 to charter, with fuel accounting for more than half the expense. 54 cents or around 2 riyals 44,700 gallons or 170,000 liters
- 8. Global Device Made on Earth
- 11. Trade can make everyone better off
- 12. Free to Trade
- 13. Open Economy An economy that interacts freely with other economies around the world
- 14. Closed Economy An economy that does not interact with other economies around the world
- 15. Exports Goods and services that are produced domestically and sold abroad
- 16. Imports Goods and services that are produced abroad and sold domestically
- 17. Net Exports The value of a nation’s exports minus the value of its imports; also called the trade balance
- 18. Trade Balance The value of a nation’s exports minus the value of its imports; also called the net exports
- 19. Net Exports = Exports - Imports
- 20. Petro
- 22. Source: CIA World Fact Book 2013
- 23. Source: CIA World Fact Book 2013
- 24. Trade Surplus An excess of exports over imports
- 25. Trade Deficit An excess of imports over exports
- 26. Balanced Trade When imports equal exports
- 27. Net Capital Outflow The purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners
- 28. Two ways to invest Direct Indirect
- 29. Foreign Direct Investment FDI Directly investing in creating a company
- 30. Foreign Portfolio Investment FPI Buying stock in a foreign company
- 37. Nominal Exchange Rate The rate at which a person can trade the currency of one country for the currency of another Sec 3 - 6 april
- 38. Appreciation An increase in the value of a currency as measured by the amount of foreign currency it can buy
- 39. Depreciation A decrease in the value of a currency as measured by the amount of foreign currency it can buy
- 40. Foreign Exchange Rate The rate at which a person can trade the goods and services of one country for the goods and services of another
- 42. Law of One Price Identical products should sell for identical prices (ignore transportation and transaction costs)
- 43. Arbitrage Buy low in one market Sell high in another market Close the value gap
- 44. Purchasing Power Parity A theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries
- 45. Efficient Market No impediments No trade barriers Good information
- 46. Purchasing Power Parity PPP Identical products should sell for identical prices (ignore transportation and transaction costs)
- 47. 3.75 0.267 Always two rates The inverse of each other 1 3.75 = 0.267 1 0.267= 3.75
- 48. Cost the same around the world? Purchasing Power Parity
- 50. $4.27 SAR 15
- 52. $4.27 x 3.75 Implied Exchange Rate 15 to 4.27 = 3.51 to 1 15 Buy Big Macs in Saudi for 15($4.00) and resell in the U.S. for 16 ($4.27) and make 6.75% profit Currency is undervalued by 6.4% (3.75 to 3.51) 16 x 3.75$4.00
- 53. Quiz: Name and ID 1.What is Arbitrage? 2. Does Saudi Arabia have a trade surplus or trade deficit? 3.What is the official exchange rate between riyals and dollars?