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Macroeconomics - Essay Example

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Macroeconomics Chapter 8 Globalization is one of the most significant trends in the modern world. The world has become a single and unified entity, where cultural and national differences are not so crucial anymore. There are a lot of reasons for globalization…
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Macroeconomics

Download file to see previous pages... “Although technology, tastes, and public policy each have important independent influences on the pattern and pace of economic integration in its various dimensions, they clearly interact in important ways. Improvements in the technology of transportation and communication do not occur spontaneously in an economic vacuum. The desire of people to take advantage of what they see as the benefits of closer economic integration—that is, the taste for the benefits of integration—is a key reason why it is profitable to make the innovations and investments that bring improvements in the technology of transportation and communication” (Mussa, n.p.).  Balance of payments is a balance through international operations, expressed in value of all complex economic relations of a country in the form of the ratio of receipts and payments. Balance of Payments is a statistical report that provides data on the foreign trade of a country with other countries over time. Simply speaking, this document reflects economic transaction of a country with the rest of the world. From the accounting point of view, the balance of payments is always in balance. However, deficit or surplus may occur in its separate sections, when receipts exceed payments, or when payments exceed revenues. The principle of double-entry accounting is used in a balance of payments, every transaction has two sides - debit and credit. Under this accounting system total of the debit should always be equal to the total amount of the loan. Generally, any balance of payments consists of two accounts – current account and capital account. A current account reflects operations with real assets, while capital account – with financial assets. According to the majority of experts, current account plays more significant role in the overall balance. For instance, negative current account of the USA has played a tremendous role in negative dynamics of the country’s balance of payments. It can be seen on the following graph. The other important theoretical item in international economics is exchange rate. Simply speaking, exchange rate is a price of a motional currency in some particular amount of a foreign currency. There are nominal and real exchange rates. Nominal exchange rate - is the relative price of currencies of two countries, or the currency of one country, expressed in the currency of another country. In turn, the real exchange rate describes the ratio in which products of one country can be sold in exchange for goods of another country. The following law is related to the problem of exchange rates. “The law of one price is the theory that the price of a given security, commodity or asset will have the same price when exchange rates are taken into consideration. The law of one price is another way of stating the concept of purchasing power parity” (Financial Theory, n.p.). Chapter 9 A curve of production opportunities is dependence that graphically illustrates the possibility of simultaneous production of two products based on limited resources spent on producing these products. A simple production possibilities curve is presented on the following picture. The curve is constructed in a coordinate system, each of which reflects the output of one of the products. It restricts the production capabilities so that any point on the curve shows the maximum possible resource constraints on the combination of production of two products. Aggregate supply is the total amount ...Download file to see next pagesRead More
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