Econ Finance

National saving

(NS= Y-C-G) income minus consumption minus government consumption

Current Account Identity

A arrangement of the National income identity, it is national savings (S is greater than I if and only if CA is positive/ in surplus. S is less than I if and only if CA is negative, or in deficit.

(net) borrower

A country with a current account deficit is called a (net) borrower

(net) lender

A country with a current account surplus is called a (net) lender

External Wealth (EW)

A home country's "net worth" with respect to the rest of the world (ROW). Derived by adding up all of the home assets owned by ROW (foreigners' claims against home" and then subtracting all of the ROW assets owned by the home country (home claims against foreigners.)

home bias

A tendency for investors to devote a disproportionate fraction of their wealth to assets from their home country when a more global diversified portfolio might protect them better from risk

productivity

A to the level of output per worker

BOP identity

CA+KA+FA=0

diversification

Countries own not only the income stream from their own capital stock, but also income streams from capital stocks of other countries

external asset

From a home perspective, a foreign asset is a claim on foreign country. When a home entity holds such an asset it is called an external asset.

net creditor

Home's external assets exceed external liabilities, and what the rest of the world owes the home country is greater than what the home country owes to the rest of the world (W>0)

net debtor

Home's external liabilities exceed external assets, and what the home country owes to the rest of the world is greater than what the rest of the world owes to the home country. (W<0)

Public Saving

It is the difference between tax revenue T received by the government and government purchases G. (Sg=T-G)

government Saving

Same as public saving, it is the difference between tax revenue T received by the government and government purchases G. (Sg=T-G)

Trade Balance (TB)

The difference between payments made for imports and payments recieved for exports. It equals net payments to domestic firms due to trade.

perpetual loan

The formula below helps us compute PV(X) for any stream of constant payments: PV(X)= X/r*= X/(1+r*)+X/(1+r*)^2+X/(1+r*)^3+...

Gross National Disposable Income (GNDI)

The sum of all net transfers and GNI.

Gross Domestic Product (GDP)

The value of all (intermediate and final) goods and services produced as output by firms, minus the value of all intermediate goods and services purchased as inputs by firms (aka value added)

Financial Account (FA)

The value of asset exports are added to home GNDI when calculating the total resources available for expenditure in the home country.

Net Factor Income From Abroad (NFIA)

The value of factor service exports minus factor service imports. (GDP plus NFIA equals GNI, which is the total income earne d by domestic entities fromall sources, domestic and foreign.

social efficiency

Today, many economists believe there is very little blocking the flow of such knowledge between countries, and that the problem must instead be one of implementation. They believe the level of A is reflects social efficiance which is Constructed broadly to include instituions, public policies, and even cultural conditions such as level of trust.

external liability

When a foreign entity holds such an asset (in the home country), it is called an external liability

National Income Identity

Y=C+I+G+CA. It tells us that the current account represents the difference between national income Y (or GNDI) and gross national expenditure GNE (or C+I+G)

sudden stop

a borrower country sees its financial account surplus rapidly shrink and so the current account deficit also must shrink

World real interest rate

a constant, small countries take it, and can lend or borrow at this rate in an unlimited amount

Current Account (CA)

a tally of international transactions in goods, services and income that occur through market transactions or transfers.

precautionary saving

an interest-only loan, or a sequence of loans for which only the principal is refinanced or rolled over every year

world bank

an international finance institution that provides non market and preferential lending to LDCs

Small Open Economy

cannot influence prices in world market for goods and services

National Income and Product accounts

how economic activity is measured and recorded through the circular flow of payments

BOP debit

if an item has a minus sign, it is called a balance of payments debit.

BOP credit

if an item has a plus sign, it is called a balance of payments credit

production function

maps available capital per worker, k=K/L. An equation that displays a firms productivity

technical efficiency

refers to an older school of thought in which economist focused on A (output elasticity capital). Constructed narrowly as a function of its technology and management capabilities.

foreign reserves

safe assets denominated in foreign currency, ie treasury bonds and low-risk debt issued by countries in rich, solvent countries

sovereign wealth funds

state-owned asset management companies that invest some government savings overseas

Long-Run Budget Constraint (LRBC)

tells precisely how and why a country must, in the LR live w/i its limits

Marginal Product of capital (MPK)

the additional output resulting, ceteris paribus, from the use of an additional unit of capital. It equates to 1 divided by the incremental capital-output ratio. It is the partial derivative of the production function with respect to capital.

present value

the amount that would have to be set aside now, so that, with accumulated interest, X is available N periods of time from now

convergence

the idea that countries can reach the level of capital per worker and output per worker of the rich country through investment and capital accumulation alone.

foreign aid

the international transfer of capital, goods, or services from a country or international organization for the benefit of the recipient country or its population.

divergence

the opposite of convergence in that more is needed for a nation to reach the level of capital per worker and output per worker of a rich country other than investment and capital accumulation alone.

Private Saving

the part of after-tax private sector disposable income that is not devoted to private consumption C.

Balance of Payments

the record of all economic transactions between the residents of a country and the rest of the world in a particular period (over a quarter of a year or more commonly over a year). These transactions are made by individuals, firms and government bodies. Thus the balance of payments includes all external visible and non-visible transactions of a country during a given period, usually a year. It represents a summation of country's current demand and supply of the claims on foreign currencies and of foreign claims on its currency.

Gross National Expenditure (GNE)

the total expenditure on final goods and services by home entities in any given period of measuremnt (usually a calandar year, unless otherwise noted)

Gross National Income (GNI)

the total income resources of the economy GDP + NFIA

Capital Account (KA)

the value of capital transfers from the rest of the world minus those to the rest of the world

Net Unilateral Transfers (NUT)

the value of unilateral transfers the country receives from the rest of the world minus those it gives to the rest of the world.

Balance of Payment Accounts

where additional flows are recorded