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BOP SFLS part 3 disequilbrium
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- 2. 5.) States ofEquilibrium Balance of Payments: 1.) Some Vocabulary 2.) The Accounts 3.) Balance between Accounts 4.) Balance between Countries 6.) Problems with Deficit/Surplus PPT 3 7.) Disequilibrium
- 3. Balance of Payments: Goal: The(typical) goal of (almost) every country is to have a balanced trade. (usually) The balance of payments is the way the measure trade between countries and one of the main components 部件 of measuring economies generally.
- 4. BOP is countingwhere the money is flowing between countries when they contract international trade and investment. Current accountCurrent account China imports some things… Balance of Payments
- 5. BOP is countingwhere the money is flowing between countries when they contract international trade and investment. Current account Current account China imports some things… But exports many more things… Balance of Payments
- 6. China uses thisextra money they have in the current account to purchase things in the financial account. Owner ship BOND Financial accountFinancial account Balance of Payments
- 7. But it’s actuallynot exactly that simple always and over time… Current accountCurrent account Owner ship BOND Financial accountFinancial account So everything balances out to equal at the end. Balance of Payments
- 8. Balance of Payments Isit a problem not to be balanced? 5.) States of Equilibrium It very difficult, next to impossible for the actual accounts in real life to equal zero. - They do they don’t stay that way for long. - The world never stops spinning. There are three basic states the BOP can be in.
- 9. Balance of Payments 3Basic States: 5.) States of Equilibrium 1.) Really Close to Balance 2.) Large Trade Deficit, Large Foreign Investment 3.) Large Trade Surplus, Large Investments Abroad
- 10. 5.) States ofEquilibrium 1.) Really close to balance Current account Cap/ Financial account - Where manageable 可管理 deficits or surpluses are cancelled out by modest 谦 虚 surpluses or deficits over time.
- 11. Time Current Account 0 Cap/Financial Account 5.) States ofEquilibrium 1.) Really close to balance - Where manageable 可管理 deficits or surpluses are cancelled out by modest 谦 虚 surpluses or deficits over time. + - surplus deficit Balanced
- 12. During this time,it’s manageable and close to being balanced
- 13. Later, it hasproblems and loses this state of equilibrium it was in.
- 14. 5.) States ofEquilibrium 2.) Large trade deficit and large foreign investment Current account Cap/ Financial account - Where large persistent deficits are in current account but is offset by a large surplus in the cap/financial accounts.
- 15. Time Current Account 0 Cap/Financial Account 5.) States ofEquilibrium + - surplus deficit Balanced 2.) Large trade deficit and large foreign investment - Where large persistent deficits are in current account but is offset by a large surplus in the cap/financial accounts.
- 16. The US isa good example of the state of large persistent deficits.
- 17. Case Study: TheU.S. Trade Deficit U.S. personal saving rates has been less than investment since the 1980s. However the economy in the 1990s was arguably the best economic time is U.S. history. You save money in a bank, that bank then loans out the money for businesses to invest. Savings = Investment However, Americans saved a very small amount of money, but investment was still increasing… In fact increased so much that the economy was doing very well. Simpler English…
- 18. If you livein America you import waaaaaaay more then you export Current account export import This is the US. Balance of Trade. The US. has a Trade Deficit . 2.) Large trade deficit and large foreign investment
- 19. In fact theU.S. does this every single year… Current account export import 2.) Large trade deficit and large foreign investment
- 20. In fact thishas been true for about 35 straight years! Current account export import 2.) Large trade deficit and large foreign investment
- 21. This means fortwenty years now the U.S. has had a trade deficit that the current account has been negative this whole time. Here is the U.S. current account since 1980. Notice since 1992 it has been in deficit. The U.S. does not have a balanced trade . 2.) Large trade deficit and large foreign investment
- 22. This means forduring these twenty years every year more money has left the country to buy things then has come in. But you know that dollars are spent in the U.S. so somehow that money has to come back in. Current account Financial account This means foreigners have been investing in the U.S economy every year. 2.) Large trade deficit and large foreign investment
- 23. See… 2.) Large tradedeficit and large foreign investment
- 24. An economy needspeople to spend money, but an economy also needs people to save money. So people use their savings to buy more expensive things, such as capital that can be used to grow an economy even more.Capital 2.) Large trade deficit and large foreign investment
- 25. The thing is,Americans save very little money. Here is the American savings rate. These numbers are quite low and have become lower over the years. 2.) Large trade deficit and large foreign investment
- 26. Yet at thesame time the American economy has grown and it can be said that the 1990’s were some of the best economic times in American history. This shows America’s GDP has grown an average of 3% during this time, which is pretty good! 2.) Large trade deficit and large foreign investment
- 27. Types of Equilibrium Howcan the economy be growing at the same time there is very little saved to buy capital?
- 28. Foreigners invest theirmoney back into America. - So it is like the Foreigners do a lot of the savings for Americans. 2.) Large trade deficit and large foreign investment
- 29. So the balanceof trade is very very very unbalanced. But the balance of payments makes this possible to be like this for more then twenty years! 2.) Large trade deficit and large foreign investment
- 30. Case Study: TheU.S. Trade Deficit U.S. personal saving rates has been less than investment since the 1980s. However the economy in the 1990s was arguably the best economic time is U.S. history. You save money in a bank, that bank then loans out the money for businesses to invest. Savings = Investment However, Americans saved a very small amount of money, but investment was still increasing… In fact increased so much that the economy was doing very well. Simpler English…
- 31. These are verylow savings rates, on over time got smaller.
- 32. However the economystill grew ok.
- 33. Case Study: TheU.S. Trade Deficit Why U.S. saving has been less than investment: In the 1980s and early 2000s, huge government budget deficits and low private saving by citizens reduced national saving. In the 1990s, national saving increased as the economy grew, but domestic investment increased even faster due to the information technology boom.
- 34. The US hada large trade imbalance with Japan in the 1990s, now it has that imbalance with China in the 2000s.
- 35. China saves alot of it’s income.
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- 37. Is the U.S.trade deficit a problem? The extra capital from the ’90s investment boom helped to increase domestic investment and the economy. The fall in saving of the ’80s and ’00s, while not desirable, at least did not reduce domestic investment, as firms could borrow money from abroad. A country, like a person, can go into debt for good reasons or bad ones. A trade deficit is not necessarily a problem, but might be a symptom of a problem. Case Study: The U.S. Trade Deficit
- 38. 5.) States ofEquilibrium 3.) Large trade surplus and large investment abroad Current account Cap/ Financial account - Where large persistent surpluses are in current account but is offset by a large deficits in the cap/financial accounts.
- 39. Time Current Account 0 Cap/Financial Account + - surplus deficit Balanced 5.) States ofEquilibrium 3.) Large trade surplus and large investment abroad - Where large persistent surpluses are in current account but is offset by a large deficits in the cap/financial accounts.
- 40. China is oneof the best examples today or having this state of having large trade surplus.
- 41. So today, Chinais on the other side, both countries have a large trade imbalance with each other, and NEED each other.
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- 43. 5.) States ofEquilibrium Balance of Payments: 1.) Some Vocabulary 2.) The Accounts 3.) Balance between Accounts 4.) Balance between Countries 6.) Problems with Deficit/Surplus 7.) Disequilibrium
- 44. Balance of Payments Isit a problem not to have a balanced trade?
- 45. Balance of Trade Isit a problem to have a current account deficit?
- 46. 1.) TOT -Terms of Trade You may be getting very bad prices for your exports. Yes because… Is it a Problem to have a Current Account Deficit? 6.) Problems with Deficit/Surplus ______________________ 2.) Loss of Competitiveness It can show some great weakness in your economy compared to other countries. 3.) Unemployment Low exports, high imports, so jobs leave your economy. 4.) Pressure for Trade Barriers Less trade = less total welfare.
- 47. Yes because… Is ita Problem to have a Current Account Deficit? 6.) Problems with Deficit/Surplus ______________________ 5.) Pressure for Exchange Rates Revalue your money can cause harm to sectors of the economy. Money is leaving you economy. 6.) Have to Rely on Foreign Investment Foreign Investment is the source of growth and not your own citizens and profits leak out of the country. 7.) Lack of Confidence Investors will be scared away from your country because you look weak. 8.) Hurt Long Term Growth It can hurt the lives of the people in your country.
- 48. Balance of Trade Isit a problem to have a current account deficit?
- 49. 1.) Import RawMaterials These can be used to create more capital. No because… Is it a Problem to have a Current Account Deficit? 6.) Problems with Deficit/Surplus 2.) Increased Standard of Living Your buying lots of cool stuff! 3.) Can Rely on Foreign Investment Foreigners can invest in your country and help it to grow! 4.) Short Run only It might be a natural short run issue that will correct itself.
- 50. Balance of Trade Isit a problem to have a current account surplus?
- 51. 1.) Rely ongrowth of others The buyers of exports or from other countries and their economies might have trouble, causing you trouble. Yes because… Is it a Problem to have a Current Account Surplus? 6.) Problems with Deficit/Surplus 2.) Rely on growth of others Your investments overseas need other economies to grow or your investments don’t make profit. 3.) Pressure on exchange rates The value of your money changes which can greatly effect you economy. 4.) Inflation pressure Prices in your economy can go up. 5.) Export away natural resources Selling your natural assets to others in other countries. 6.) Externalities Factories for exports = more pollution
- 52. 1.) Economics growth Exportsector growth can increase the whole economy. No because… Is it a Problem to have a Current Account Surplus? 6.) Problems with Deficit/Surplus 2.) Increased Employment Jobs, jobs, jobs, jobs! 3.) Increased Investment More capital at home and more overseas.
- 53. Is it aproblem not to have a balanced trade? So to summarize… 6.) Problems with Deficit/Surplus
- 54. Is it aProblem not to be Balanced? - Your country can rely on FDI to grow the economy, but the wealth goes to foreigners. No because… - Your country is gaining wealth and can have large increases in the economy. “Rising tide lifts all boats” - If in surplus - - If in deficit- 6.) Problems with Deficit/Surplus
- 55. Yes because… - Ifin surplus - - It will not last. Some countries become dependent on a narrow range of goods and make the economy unstable. - Downward pressure on exchange rates -Increase pressure for governments to have tariffs and quotas - Increase unemployment - If in deficit- - Your country can rely on FDI to grow the economy, but the wealth goes to foreigners. Is it a Problem not to be Balanced? 6.) Problems with Deficit/Surplus
- 56. 5.) States ofEquilibrium Balance of Payments: 1.) Some Vocabulary 2.) The Accounts 3.) Balance between Accounts 4.) Balance between Countries 6.) Problems with Deficit/Surplus 7.) Disequilibrium
- 57. 1.) Economic Disequilibrium Structural- changes in some sectors of the economy alter 更改 the demand and supply forces influencing exports and imports 7.) Disequilibrium
- 60. 1.) Economic Disequilibrium Cyclical- Patterns of income changes with the business cycle. ex.) agricultural output Structural 7.) Disequilibrium
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- 65. 1.) Economic Disequilibrium Cyclical Highincomes during prosperity 景气 = more imports Low incomes during depression 不景气 = less imports a.) Change in YED 7.) Disequilibrium
- 66. 1.) Economic Disequilibrium Cyclical a.)Change in YED b.) Change in PED When prices rise in prosperity, and with more elastic demand for imports. = less imports When prices decline in depression, and with more elastic demand for imports. = more imports ( Inflation problems ) 7.) Disequilibrium
- 67. 1.) Economic Disequilibrium 2.)Political Disequilibrium A lack of confidence by investors means less people are willing to invest and decreases capital and financial accounts. Scared investors = decrease capital/financial investment 7.) Disequilibrium
- 68. 1.) Economic Disequilibrium 2.)Political Disequilibrium 3.) Social Disequilibrium People just don’t want your stuff. Changes in the tastes, preferences and fashions, may affect imports and exports and thereby affect the balance of payments. 7.) Disequilibrium
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- 72. 1.) Economic Disequilibrium 2.)Political Disequilibrium 3.) Social Disequilibrium - Cyclical - Structural a.) Change in YED b.) Change in PED 7.) Disequilibrium
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