《初级宏观经济学》（英文版）Chapter 10 Open Economy

Chapter 10 Open Economy 复表经济学院

Chapter 10 Open Economy 0 10 20 30 40 90 91 92 93 94 95 96 97 98 99 00

Topics to be Discussed a National Income Accounting and the Balance of Payments other concepts o The determination of exchange rate o floating exchange rate system o FIxed exchange rate system o Trade environment and policy o Summary of the open economy 复表经济学院

Topics to be Discussed ◼ National Income Accounting and the Balance of Payments & other concepts  The determination of exchange rate  floating exchange rate system  Fixed exchange rate system  Trade environment and policy  Summary of the open economy

10.1 National Income Accounting and the Balance of Payments & Other Concepts o Balance of Payment recording the financial capital debit and credit purchases or sales of investment assets\ exports or imports of goods or services, etc. Balance of payments include capital account current account and balance account o The Balance of Payments Accounts: a systematical report forms of all economic transactions in a period, including current item capital item and balance item 复表经济学院

10.1 National Income Accounting and the Balance of Payments & Other Concepts  Balance of Payment ： recording the financial capital debit and credit、purchases or sales of investment assets 、exports or imports of goods or services, etc. Balance of payments include capital account、current account and balance account.  The Balance of Payments Accounts ： a systematical report forms of all economic transactions in a period, including current item、 capital item and balance item

10.1 National Income Accounting and the Balance of Payments Other Concepts o Current item: or goods and labor services item, including: goods (imports and exports); labor services, such as, transportation insurance traveling investment labor services (interest, dividend profit and other labor; international unilateral transfer, such as religion、 charity、 donation to the education、 non-war reparations, etc. o Capital item: all of the exchange activities facing exterior capital and debts, such as investment, stocks and bond trading, etc. o Official repertory item the exterior net trading of national currency department including gold, foreign exchange repertory, etc. If the credit is larger than the debit, then the item will increase; otherwise, if the debit is larger than the credit, then the item will decrease o Error item: balance through this item if the credit does equal to the debit 复具济学院

10.1 National Income Accounting and the Balance of Payments & Other Concepts  Current item：or goods and labor services item, including: goods (imports and exports); labor services, such as, transportation、 insurance 、 traveling 、 investment labor services (interest 、 dividend 、 profit) and other labor ； international unilateral transfer, such as religion、charity、donation to the education、 non-war reparations, etc.  Capital item：all of the exchange activities facing exterior capital and debts ,such as investment 、stocks and bond trading, etc.  Official repertory item ： the exterior net trading of national currency department , including gold 、 foreign exchange repertory ,etc. If the credit is larger than the debit, then the item will increase; otherwise, if the debit is larger than the credit, then the item will decrease.  Error item：balance through this item if the credit does equal to the debit

10.1 National Income Accounting and the Balance of Payments Other Concepts O Capital account: recording international investment and debit and credit International investment includes the foreign real estate foreign corporations' stocks foreign governments bonds of individual corporation and government, and the domestic real estate stocks and government bonds purchased by the foreign individual, corporations and governments. International debit and credit includes the domestic corporation and government loan get from foreign bank fund and governments, and the funds lent by the foreign corporations and governments. Capital mobility is defined CF, R is domestic interest, R" is the foreign interest, a is the coefficient, then a-R 济龄院

10.1 National Income Accounting and the Balance of Payments & Other Concepts ( ) R R * CF = a − Capital account：recording international investment and debit and credit. International investment includes the foreign real estate 、foreign corporations’ stocks 、foreign governments’ bonds of individual、 corporation and government, and the domestic real estate、stocks and government bonds purchased by the foreign individual、 corporations and governments. International debit and credit includes the domestic corporation and government’ loan get from foreign bank、fund and governments, and the funds lent by the foreign corporations and governments. Capital mobility is defined CF,R is domestic interest, R* is the foreign interest, a is the coefficient, then:

10.1 National Income Accounting and the Balance of Payments Other Concepts O Current account: mainly be used to record the total amount of imports and exports in goods and services Including Net Export, Investment Income, Transfer Payment. Defining that the NX is the net export, Y is the national income, E is the nominal exchange rate, P is the domestic price, Pis the foreign price, then: NX=g-nY-m·E 夏子终济器院

10.1 National Income Accounting and the Balance of Payments & Other Concepts Current account：mainly be used to record the total amount of imports and exports in goods and services. Including Net Export、Investment Income、Transfer Payment. Defining that the NX is the net export, Y is the national income, E is the nominal exchange rate, P is the domestic price, P* is the foreign price, then： * P P NX = g − nY − mE

10.1 National Income Accounting and the Balance of Payments Other Concepts o Because the Balance of Payments(BP) can be abbreviated to capital mobility and net export, then: BP=cF+NX a(r-r)+g-nr-mE P 复表经济学院

10.1 National Income Accounting and the Balance of Payments & Other Concepts Because the Balance of Payments (BP）can be abbreviated to capital mobility and net export, then： * * ( ) P P a R R g n Y m E B P CF NX = − + − −  = +

10.2 The Determination of The Exchange Rate o Exchange rate is the relative price of the domestic currency and the foreign currency, and plays an important role in the international economic activities o The change of the exchange rate can directly affect the net export o The exchange rate can affect the domestic gross demand through the net export 复表经济学院

10.2 The Determination of The Exchange Rate  Exchange rate is the relative price of the domestic currency and the foreign currency, and plays an important role in the international economic activities.  The change of the exchange rate can directly affect the net export.  The exchange rate can affect the domestic gross demand through the net export

10.2 The Determination of The Exchange Rate oA highly-abbreviated model s There are only two countries in the world, one is China the other is Canada; They only produce one product corn, people consume corn, and use it to invest seeds), government uses corn to pay. If the price of corn is 1 yuan per kilogram in China 1 Canadian dollar per kilogram in Canada Then the rate of exchange of RMB to canadian dollar should be 1:1 namely IrMB exchange 1 Canadian dollar 复表经济学院

10.2 The Determination of The Exchange Rate A highly-abbreviated model ❖There are only two countries in the world, one is China, the other is Canada; They only produce one product, corn, people consume corn, and use it to invest（ seeds), government uses corn to pay. If the price of corn is 1yuan per kilogram in China ,1 Canadian dollar per kilogram in Canada。Then the rate of exchange of RMB to Canadian dollar should be ？ 1：1 namely1RMB exchange 1Canadian dollar

10.2 The Determination of The Exchange Rate O Suppose that if the price of corn in China is 2yuan per kilogram, and 1 Canadian dollar per kilogram in Canada. Then what should the rate of exchange from RMB to Canadian dollar e 2: I namely 2yuan RMB exchanges Canadian dollars o Otherwise, if the price of corn in Canada rise to 2yuanRMB per kilogram, and 1Canadian dollar per kilogram in China Then what should the rate of exchange from RMB to Canadian dollar be? 1: namely luan RMB exchange 2 C anadian dolars 经济器院

10.2 The Determination of The Exchange Rate Suppose that if the price of corn in China is 2yuan per kilogram, and 1Canadian dollar per kilogram in Canada. Then what should the rate of exchange from RMB to Canadian dollar be ？ 2:1 namely 2yuan RMB exchanges1Canadian dollars Otherwise, if the price of corn in Canada rise to 2yuanRMB per kilogram, and 1Canadian dollar per kilogram in China. Then what should the rate of exchange from RMB to Canadian dollar be？ 1:2namely 1yuan RMB exchange 2 Canadian dollars