Please enable JavaScript.
Coggle requires JavaScript to display documents.
Global Economics (EXCHANGE RATES: price of foreign currency compared to…
Global Economics
-
debts and deficits
-
-
-
country risk: "grade value" determining a country's level to pay off bonds - the lower the grade, the greater the risk
**international flow of goods, services, income & capital allow the global macro economy to operate
-
money: low rate of return, unit of account (all prices in the economy are quoted), and is very liquid
-
M1: includes currency in circulation and high liquid instruments (checking accounts); does not include bank's reserves
-
-
-
-
long-run budget constraint (LRBC): places a limit on a country's budget to see how a country can live within their means in the long tun
small open economy: a country that trades goods and services with the rest of the world but only by issuing bonds
-
in an open economy, LRBC is satisfied (= 0), consumption is smooth, no gains from financial globalization because only consume what it produces, thus no need to borrow or lend to achieve preferred consumption path
-
diversification: countries own the income steam from their own capital stock and from capital stocks in other countries
-
The Fisher Effect: a rise in the inflation rate leads to a proportional rise in the nominal interest rate
real interest parity: real interest rates are equal between all countries in the market when PPP & UIP hold
-
consumers consume more when their disposable income increases, aka the consumption function
marginal propensity to consume (MPC): slope of teh consumption function that tells us how much of every $1 of disposable income received by households is spent on consumption
basic model of economic activity: in the short run, collects taxes (T) from private households and spends amount G on government consumption of goods and services
transfer programs: social security, medical care, etc. are not included in the aggregate because they don't generate change to total expenditure of goods - they just change who gets to engage in act of spending
-
keynesian cross: depicts the goods market equilibrium, where demand equals supply
-
-
the exchange rate mechanism created a fixed rate system throughout Europe and the Deutsche mark (DM) was used as the base currency for the ERM -- they were able to create their own money suuply and nominal interest rates
economic integration: growth of market linkages in goods, capital and labor markets among countries
asymmetric shock: fixed exchange rate that can lead to costs that are not shared by the other countries
fixed exchange rate systems: more commonly used in the real world that involve multiple countries to peg to a foreign base country
reserve currency system: "n" number of countries participate and the center country provides the reserve currency which is the base for all other pegged countries
cooperative arrangements: mutual agreements and compromises between center and non-center countries when establishing interest rates and fixed exchange rates
-
-
banking crisis: in a private sector, if banks and other financial institutions face adverse shocks causing them to close or declare bankruptcy
default crisis: in the public sector, if the government faces adverse shocks, it may default and be unable to pay the principal or interest on debts
twin crises crisis in pairs, or triple crisis crisis in threes, magnify the costs of any one type of crisis
-
-
-