tailieunhanh - Lecture International economics: Chapter 2 - Hendrik Van den Berg

Chapter 2 - The open economy. After completing this chapter, students will be able to: Review the simple circular flow diagram of a closed economy; illustrate how the closed economy circular flow diagram can be extended into an open economy circular flow diagram and all of its linkages with the rest of the world; explain the balance of payments accounts, which reflect the logic of the open economy circular flow diagram;. | International Economics and the Global Economy The international trading enhanced competition and nurtured what Joseph Schumpeter a number of decades ago called “creative destruction,” the continuous scrapping of old technologies to make way for the new. (Alan Greenspan, 2001) The Goals of This Chapter Review the simple circular flow diagram of a closed economy. Illustrate how the closed economy circular flow diagram can be extended into an open economy circular flow diagram and all of its linkages with the rest of the world. Explain the balance of payments accounts, which reflect the logic of the open economy circular flow diagram. Introduce foreign exchange markets and explain how foreign exchange rates are determined by the supply and demand for currencies, which are fundamentally related to the flows recorded in the balance of payments. Present the recent changes in the . balance of payments. Explain the net investment position of a country and how it is related to the balance of payments. The Circular Flow of an Economy An economy is a complex organism whose many elements engage in a variety of economic transactions. The circular flow diagram provides a simplified picture of all these economic transactions. A simplest version of an economy consists of households and producers. A more complete circular flow diagram adds a financial sector and a government. Note that the circular flow shows the directions of the flows of payments, not the direction of the flows of the goods or services paid for. The Basic Circular Flow of an Economy Individuals Producers C FP Adding Investment Goods (Capital Goods) Individuals Producers C FP I Adding Intermediate Goods Supplied Among Producers Individuals Producers C FP IG I Adding Transfers among Individuals Individuals Producers C FP IG I Tr Adding the Government to the Economy Individuals Producers C FP IG I Tr Government TXI TRI G TXP TRP Adding the Financial Sector fo the Economy Individuals Producers C FP . | International Economics and the Global Economy The international trading enhanced competition and nurtured what Joseph Schumpeter a number of decades ago called “creative destruction,” the continuous scrapping of old technologies to make way for the new. (Alan Greenspan, 2001) The Goals of This Chapter Review the simple circular flow diagram of a closed economy. Illustrate how the closed economy circular flow diagram can be extended into an open economy circular flow diagram and all of its linkages with the rest of the world. Explain the balance of payments accounts, which reflect the logic of the open economy circular flow diagram. Introduce foreign exchange markets and explain how foreign exchange rates are determined by the supply and demand for currencies, which are fundamentally related to the flows recorded in the balance of payments. Present the recent changes in the . balance of payments. Explain the net investment position of a country and how it is related to