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Exam 5Chapter 32 and 33 Tuesday April 23
Chapter 32The Macroeconomics of Open Economies
Key Termsclosed economy   net capital outflowopen economy     nominal exchange rateexports          appreciationimports    ...
Global Device
ARM Holdings          Wolfson           Marvel         Skyworks           U.S.             CSR  Linear Technologies       ...
Trade can makeeveryone better off
Open Economy    An economy that  interacts freely withother economies around       the world
Closed Economyan economy that doesnot interact with othereconomies around the         world
ExportsGoods and services that    are produced domestically and sold       abroad
ImportsGoods and services that are produced abroad and sold domestically
Net Exports   The value of a nation’sexports minus the value ofits imports; also called the       trade balance
Trade Balance   The value of a nation’sexports minus the value ofits imports; also called the        net exports
Net Exports= Exports - Imports
Trade SurplusAn excess of exports   over imports
Trade DeficitAn excess of imports   over exports
Balanced TradeWhen imports equal    exports
Net Capital Outflow  The purchase of foreignassets by domestic residents   minus the purchase of     domestic assets by    ...
Foreign Direct    Investment        FDIDirectly investing increating a company
Foreign Portfolio       Investment          FPIBuying stock in a foreign        company
Nominal Exchange RateThe rate at which a person  can trade the currency  of one country for the   currency of another
Appreciation An increase in the valueof a currency as measured by the amount of foreign    currency it can buy
DepreciationA decrease in the value of a currency as measuredby the amount of foreign   currency it can buy
Foreign Exchange RateThe rate at which a person  can trade the goods andservices of one country for the goods and services...
Purchasing Power          Parity    A theory of exchange rates    whereby a unit of any givencurrency should be able to bu...
Purchasing Power          ParityCost the same around the world?
Big Mac Economics         $4.37         x 3.75 = 16.38                          3.75 to 1 or .267 to 1         11 SR      ...
Eco 202 ch 32 macroeconomics of an open economy
Eco 202 ch 32 macroeconomics of an open economy
Eco 202 ch 32 macroeconomics of an open economy
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Eco 202 ch 32 macroeconomics of an open economy

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Transcript of "Eco 202 ch 32 macroeconomics of an open economy"

  1. 1. Exam 5Chapter 32 and 33 Tuesday April 23
  2. 2. Chapter 32The Macroeconomics of Open Economies
  3. 3. Key Termsclosed economy net capital outflowopen economy nominal exchange rateexports appreciationimports depreciationnet exports real exchange ratetrade balance purchasing power paritytrade surplustrade deficitbalanced trade
  4. 4. Global Device
  5. 5. ARM Holdings Wolfson Marvel Skyworks U.S. CSR Linear Technologies U.K. NXPNational Semiconductor Germany Sharp Korea Samsung Toshiba Japan Infineon Broadcom Taiwan Numonyx Micron China Dialog Semiconductor Texas Instruments STMicroelectronics Silicon Storage RF Microdevices Cirrus Logic
  6. 6. Trade can makeeveryone better off
  7. 7. Open Economy An economy that interacts freely withother economies around the world
  8. 8. Closed Economyan economy that doesnot interact with othereconomies around the world
  9. 9. ExportsGoods and services that are produced domestically and sold abroad
  10. 10. ImportsGoods and services that are produced abroad and sold domestically
  11. 11. Net Exports The value of a nation’sexports minus the value ofits imports; also called the trade balance
  12. 12. Trade Balance The value of a nation’sexports minus the value ofits imports; also called the net exports
  13. 13. Net Exports= Exports - Imports
  14. 14. Trade SurplusAn excess of exports over imports
  15. 15. Trade DeficitAn excess of imports over exports
  16. 16. Balanced TradeWhen imports equal exports
  17. 17. Net Capital Outflow The purchase of foreignassets by domestic residents minus the purchase of domestic assets by foreigners
  18. 18. Foreign Direct Investment FDIDirectly investing increating a company
  19. 19. Foreign Portfolio Investment FPIBuying stock in a foreign company
  20. 20. Nominal Exchange RateThe rate at which a person can trade the currency of one country for the currency of another
  21. 21. Appreciation An increase in the valueof a currency as measured by the amount of foreign currency it can buy
  22. 22. DepreciationA decrease in the value of a currency as measuredby the amount of foreign currency it can buy
  23. 23. Foreign Exchange RateThe rate at which a person can trade the goods andservices of one country for the goods and services of another
  24. 24. Purchasing Power Parity A theory of exchange rates whereby a unit of any givencurrency should be able to buy the same quantity of goods in all countries
  25. 25. Purchasing Power ParityCost the same around the world?
  26. 26. Big Mac Economics $4.37 x 3.75 = 16.38 3.75 to 1 or .267 to 1 11 SR x .267 = $2.93Implied Exchange Rate 4.37 to 11 = 2.52 to 1 Currency is undervalued by 33 percent Buy Big Macs in Saudi for 11($2.93) and resell in the U.S. for 16.38 ($4.37) and make 49% profit
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