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Macroeconomics:
Topic 1
1. GDP =^ GNP- Paymentsgrom goreign t payments to goreign countries
countries for factors of for factors of production
production Expenditure by
domestic viduals (^) andindi-
-^ institutions
2. National Income Identity - > Y = C + I+ G + Ex-IM
for an^ open^ economy =^ C^ +^1 +^6 +^ CA
: Net
expenditurebyfreesee
CA =^ Ex - IM =^ Y -^ (c^ +^ I+^ 6)
- When (^) production > domestic expenditure EX IM CA)O Trade >
Balance
- when (^) production (domestic (^) expenditure EXCIM CACO Trade (^) <O Balance
- (^) National (^) Saving (5) - >^ S =^ Y-C-G
open economy - >^ S^ =^ I^ +^ CA
4. Private Saving (5% ) - >^ So-Y-T-C
- Government (^) Saving (s)) ex^59 =^ T-G · S = (Y - T - C) + (^) (T - 6) = S (^) + 59 (^6). -Current account (^) (imports and exports)
(financial capital)^3 CA^ +^ FA^ +^ CGA^
- Capital account (capital)
Topic 2
(^1). How (^) much can be (^) exchanged (^) for one dollar/a (^) yen? - >^ $ (^0) , 01027
E
NissanCost =^ E2 500 000 R 2500000 x $ 0 , 01027 = $ 25672 , 50
F
2. Depreciation - > $1/-$ 1 , 20/E means that the dollar has depreciated relative to the euro.
it now takes $ 1 , 20 to buy 1 , so dollar is less valuable. EURO APPRECIATED
3. Appreciation -^ >^ $A/->^ $ 0 ,90/ means that dollar has appreciated relative to E^.
now takes only^10 , 90 to buy 1E^ , so^ dollar is^ more valuable.^ EURO DEPRECIATED
3. Rate of return - >^ The annual return for $ 100 savings deposit with an interest rate of 2 %^ is :^ $ 100 x 1 , 02 =^ $ 102
sois Rate
of Return = ($^102 - $100)^ = 2 %
- Real Rate (^) of Return - >^ Real rate (^) of return (^) for the above (^) savings deposit when (^) inflation is (^1) , 5 % is >^2 %^ -1 (^) , 5 %^ =^0 , 5 % the asset can purchase (^0) , 5 %^ more goods and services (^) after 1 year.
-xinflation
- If prices are (^) fixed , M rate is 0 %^ then Rates of Return =^ Real rates (^) of return. F (^). Difference in the rate (^) of return on dollar (^) deposits and euro (^) deposits is : expected rate (^) of return on E (^) deposits
-edraappreciation of the euro
--
R$ - (Re +
(Ee
expected rate s ↓
interest^ of^ return rate^ =^ Interest^ rate^ Exchange currentT^ exchange rate on $ (^) deposits on E^ deposits Rate
EIE-EIIE
8. Interest parity
says
= EDI=
9 F-^ EDIE
. Covered interest parity (CIP) - >^ R$ = RE + E/E
EXAMPLE :. 1-year ferward price of E in terms of $ is F$/- = $ 1 , 113 spot exchange rate is EIE = $ 1 , 05 per E
· If Re = 0. 04 R$ = 0. 10
(^1). It (^) costs $ (^1) , (^05) today and is (^1) , 04 E (^) after 1 year.
2. Selling 1 , 047 gerward today at Fe = $ 1 , 113 perf yield a $ value aftera
year of^
(1 (^) , 04) - (1 , 113) =^ $ (^1) , 138
3. Rat of return on the covered purchase of E deposit is (1 , 158-1 , 05) = 0 , 103 or 10. 3 % that is
greater than
10 % rate of return on dollar deposit and COVERED INTEREST PARITY S
Forward discount on $ (^) against E
10. Forward Premium E against FIE-EAE
E- /E
(^11). CIP (^) and VIP es^ we (^) find that both (^) conditions can be (^) true at the (^) same time (^) only is the (^) 1-year forward take (^) quoted (^) today
equals the^ spot^ exchange^ rate^ people^ expect^ to^ materialize^ a year from today
Topic 3 Priceevel Measure^ g interest^ rates^ on^ non-monetary^ assets
e - Real^ National^ Income
1. Aggregate demand of money - >^ Mo^ =^ Px mL(R^ , 4)
Aggreate demand^ of^ real^ monetary^ assets
C.
Aggregate demand^ of^ real^ monetary^ assets^ is^ a^ function^ of national^ income^ and^ interest^ rates^ P^
LR , Y
- (^) Model (^) of the (^) Money Market (^) Equilibrium when M^ =^ M Also when M =^ L(R, (^4). Long run -^ In the LR (^) , there is (^) a direct (^) relationship tw (^) the rate (^) and (^) changes in the MS Ms =^ Px L^ (R , Y) = (^) , Topic 4
- (^) Purchasing Power (^) Parity ->^ Pus = (EUS$IC) x (PCanada) (^2). Exchange rate^ is determined (^) by the level (^) of average prices - >^ Eswadn
- Absolute PPP - >^ Este^ = to^ maintain
4. Relative ppp - >^ (E/Eit^ -E$/E,^ +^ 1)^ = Musit - Merit In
croer PPP
PUS
Ele , t - 1 Ele = PEN
In order to^ maintain
5.^ -
Monetary Approach^ to^ the^ exchange rate^ -^ Pushorium^ i
6.^ Fisher^ Effect - >^ R$-RE =^ Mus-M
(^7). (^) Real Exchange rate^ - >^ 9 (EI^ x PE Pus (^3). Real (^) exchange rate (^) approach- (^) E = 9 x
9. Real Interest Rate -^ =^ R-Me
(^10). Real (^) interest (^) parity - >^ ris-re =^ (9usizu-Susie
Susieu
3. Japan exchange rate 3604/US$ 1
France (^) exchange rale^5 Ffr/US$1}^ Yenlgranc rate^ was^
- (^) Internal balance in the (^) SR occurs when (^) production is at (^) potential output or when (^) "full employment" equals (^) aggregate demand^ Le, 58 = c + 2 + 6 + Ca(*, (^) A)
= A + ca(Ep+, a)
Topic &
If assets^ are^ treated (^) as (^) perfect substitutes (^) , then (^) we (^) expect interest (^) parity to hold on (^) average :
Re-RE=^ (Ett^
- Et) E- t under this condition (^) , the interest rate
difference is^ the^ market's forecast of
expected changes in^ the^ exchange
rate.
rish premium
necessarily :^ If^ assets^ are^ imperfect substitutes^ then^ :^
+ Pe
