Bài giảng MicroEconomics - Chapter 038 The Balance of Payments, Exchange Rates, and Trade Deficits

The Balance of Payments, Exchange Rates, and Trade DeficitsChapter 38McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter ObjectivesHow currencies are exchangedBalance sheet for recording international paymentsHow exchange rates are determined Flexible vs. fixed exchange rates Causes and consequences of trade deficits38-2International TransactionsInternational tradeBuy/sell current goods or servicesImports and exportsInternational asset transactionsBuy/sell real or financial assetsBuy stockSell your house to a foreignerRequires currency exchange38-3Balance of PaymentsSum of international financial transactionsCurrent accountBalance on goods and servicesNet investment incomeNet transfersBalance on current account 38-4Balance of PaymentsCapital and financial accountCapital accountFinancial accountBalance of payments accounts sum to zeroCurrent account deficits generate asset transfers to foreignersOfficial reserves38-5U.S. Trade BalancesGoods and Services, Select Nations, 2007SurplusDeficitAustraliaBelgiumCanadaChinaGermanyMexicoNetherlands+10.0-67.0-45.3+9.8-256.6-77.3+14.3Source: Bureau of Economic Analysis-10-20-30-40-50-60-70-2501020Japan-85.038-6Flexible Exchange RatesDemand for poundsSupply of poundsMarket equilibriumIncrease in dollar price of poundsDollar depreciatesPound appreciates Decrease in dollar price of poundsDollar appreciatesPound depreciates38-7Q0Dollar Price of 1 PoundQuantity of PoundsPFlexible Exchange RatesThe Market for Foreign Currency (Pounds)D1S1DollarDepreciates(PoundAppreciates)DollarAppreciates(PoundDepreciates)ExchangeRate: $2 = £1$2$3$1Q138-8Flexible Exchange RatesDeterminants of exchange ratesFactors that shift demand/supplyChanges in tastesRelative income changesRelative price-level changesPurchasing-power-parity theoryRelative interest ratesRelative expected returns on assetsSpeculation38-9Q0Dollar Price of 1 PoundQuantity of PoundsPFlexible Exchange RatesThe Market for Foreign Currency (Pounds)D1S1ExchangeRate: $2 = £1$2$3$1Q1D2ExchangeRate: $3 = £1BalanceOf PaymentsDeficitQ2xabc38-10Flexible Exchange RatesEliminate balance of payments deficit or surplusDisadvantages of flexible exchange ratesVolatility Uncertainty and diminished tradeTerms-of-trade changesInstability38-11Fixed Exchange RatesGovernment interventionUse of reservesTrade policiesExchange controls and rationingDistorted tradeFavoritismRestricted choiceBlack marketsMacroeconomic adjustments38-12Exchange Rate SystemsGold standard 1879-1934Fixed exchange rate systemBretton Woods 1944-1971Fixed exchange rate system indirectly tied to goldManaged float 1971-present38-13Managed FloatDependence on foreign exchange marketsOccasional interventionIn support of managed floatConcerns with managed float38-14U.S. Trade DeficitLarge and persistentCauses of trade deficitsHigh U.S. growth (relatively)ChinaPrice oilLow U.S. saving rateImplications of trade deficitsIncreased current consumptionIncreased indebtedness38-15Speculation in Currency MarketsPositive or negative influence?Contributes to currency market fluctuationsSelf-fulfilling expectations Smoothing short-term fluctuationsAbsorbing riskFutures market at workPositive role played overall38-16Key Termsbalance of paymentscurrent accountbalance on goods and servicestrade deficittrade surplusbalance on current accountcapital and financial accountbalance on capital and financialbalance-of-payments deficits and surplusesofficial reservesflexible- or floating- exchange-rate systemfixed-exchange-rate systempurchasing-power-parity theorycurrency interventionsmanaged floating exchange rate 38-17