NationStates Jolt Archive

And I am very screwed.

I especially don't understand the functions and problems about the balance of payments. Help????? :confused:

balance of payments consists of balance of trade and balance of services, when they add up they can equal whatever the hell they want, but in the long run you want to keep them balanced (= zero), hence the name "balance" of trade.

other than that i can't help - thats what i remember from A level Economics. i have an econ exam tomorrow too, and i'm totally screwed:(
been to maybe 2 lectures all year. ah well. my advice: don't care about it - it can only bother/worry you if you let it

Your just in luck.

Ask a question; or should I say everything I know?

Your just in luck.

Ask a question; or should I say everything I know?

a) What is so bad about current account surplus? Deficit? Capital account surplus? Deficit?

b) How can the Marshall-Lerner Criteria be artificially satisfied?

c) This is outside, but: does a fixed exchange rate cause a loss of indepedence to alter the interest rate? If yes, why?

balance of payments consists of balance of trade and balance of services, when they add up they can equal whatever the hell they want, but in the long run you want to keep them balanced (= zero), hence the name "balance" of trade.

other than that i can't help - thats what i remember from A level Economics. i have an econ exam tomorrow too, and i'm totally screwed:(
been to maybe 2 lectures all year. ah well. my advice: don't care about it - it can only bother/worry you if you let it

Oh dear...

Is that something to do with the Swan Diagram? uh uh uhh uh uh uh uh .. :p

I just did my finals 3 days ago and I got very much drunk after that. I think I lost a few braincells. Brb. I'll post in a while your questions.. Trying to find for my Macro notes.

This is sort of difficult because I don't know what type of course your doing.

a) What is so bad about current account surplus? Deficit? Capital account surplus? Deficit?
There is nothing bad or good normally; it just hype by extremists.

A current account deficit means a nation is importing more than its exporting and paying for this by selling assets to foriegners or borrowing (capital account surplus). It is generally a case of 'consenting adults', no one loses.

However there are cases where there is a problem, like America's CAD. America's current account is financed by borrowing; not unusual. However there is no good reason to lend the US money. Most nations are lent money to invest, in the US it is to finance the budget deficit and consumer spending.
But even in this situation the CAD is mainly press noise rather than tragic economics. The problem will be when people stop lending to the US.

b) How can the Marshall-Lerner Criteria be artificially satisfied?
Never heard of it, not by that name. Is that the Keynsian trade equation?

c) This is outside, but: does a fixed exchange rate cause a loss of indepedence to alter the interest rate? If yes, why?
Yes.
A fixed exchange rate must be supported by the government (keep S=D). Differential interest rates between nations sharing a fixed exchange rate will lead to incentives to shift money from one currency to another to earn a higher interest rate. This will lead to supply and demand inbalances and hence the exchange rate will falter. The governments will have to supply the excess demand (or vis versa depending on the case) pumping domestic currency into the economy creating liquidity forcing down market interest rates.
Thus interest rates must be kept approximately equal across nations to prevent large and destabilising capital flows.

Sorry, it was a little rush, I'll be back in ten minutes.

Thank you!! :fluffle:

The ML Criteria states that a depreciation in the currency will only lead to an improvement in the current account only if the combined price elasticities of exports and imports are greater than 1.

b) How can the Marshall-Lerner Criteria be artificially satisfied?

Marshall-Lerner , it's something to do about the flexibility/elasticity of the balance of payments. (you might have to google it)

If the (for example) supply for forex is steep, then, any changes in demand for forex, in the short run, we would see negligable changes.

Marshall Lerner, artificially satisfied... Not so sure. I think their talking about expenditure switching policy.

Thank you!! :fluffle:

Maybe I'll flunk the exam and don't go to university. :D

The ML Criteria states that a depreciation in the currency will only lead to an improvement in the current account only if the combined price elasticities of exports and imports are greater than 1.

Tariffs can be used to alter the elasticity of import/exports, I presume the right combination of trade policies could artificially increase (temporarily) that elasticity over a short-term (say, on a quarterly scale).

It's been so long since I took Econ that I'm kind of fuzzy about that, though.

Thank you!! :fluffle:

Maybe I'll flunk the exam and don't go to university. :D

If your not good at this chapter, then if it's optional avoid it. Like I just took my 2nd year Macroeconomics paper last friday.

I did mostly about topics I'm pretty strong at, like the Phillips curve, demand&supply and IS-LM.

If your pretty doomed right now, maybe you can try and find some past year papers, or call some friends, it's only 8pm right now. Then just do past year papers. You might get lucky. Rather than trying to attempt reading everything last minute. Try and see what topics come out quite regularly, or always come out.

Any other questions?

Oh dear...
yeah i've forgotten everything:(

THANKS A LOT, EVERYBODY!

It's time for dinner now, but you can be sure I will be back for more questions. I've already flunked the rest of my subjects, at least let me pass this one. :(

Ho ho ho.

THANKS A LOT, EVERYBODY!

It's time for dinner now, but you can be sure I will be back for more questions. I've already flunked the rest of my subjects, at least let me pass this one. :(

Ho ho ho.


Yeah.. Econs is the easiest. You shouldn't have any problems. :p

...However there are cases where there is a problem, like America's CAD. America's current account is financed by borrowing; not unusual. However there is no good reason to lend the US money. Most nations are lent money to invest, in the US it is to finance the budget deficit and consumer spending.
But even in this situation the CAD is mainly press noise rather than tragic economics. The problem will be when people stop lending to the US.


No kidding. Blame your parents, folks. In 1963, the U.S. was running a comfortable surplus with "1st Place" in most economic categories, had a working industrial base that produced a comfortable surplus, and was a net-exporter.


The shape we're in right now (and have been, on a downward spiral since 1979) is the morning after a big party. The tools in the garage were sold for booze and party-favours, the house is trashed, the car is trashed, people are sleeping on the lawn, the rent is due, the cards are maxed, and payment overdue, there's no money in the account, and no way to produce enough with things in their current shape to climb out of debt.

The people that did this to you have been retiring for the last ten years, and will swamp social security by 2012, when the balance of wage-producing workers goes upside-down. For the last twenty years, they've been staving off the inevitable by shipping out the engines of production at firesale pricing. (This is known as "GATT and NAFTA", one pays companies to go to third-world nations, the other merely enables them.)

WE are SCREWED. Schools are more concerned with making "Good Environmental Citizens" and "Self-Esteem" than they are with generating productive members of society-and why not? the Production turned into a major export when trade barriers dropped and corporations found out they could locate to China (where there are no worker's protections, environmental laws, etc.) and get a Government cheque for doing so-not only lowering operating expenses, but being paid to lay people off. (this started in 1972 under Nixon. Nobody, not carter, not Clinton, not Reagan or either Bush, has done anything to stem the haemorrage.)

In the late 1980s and early 1990's they were heralding the coming of a "Service Economy". I've lived in one of those-you can starve to death between tourist seasons, and you can't eat the scenery.

REcently, it was discovered that "Tech Support" works just as well from New Delhi or Beijing, as it does from Renton. Now, we have white-collars getting what blue-collars have gotten since the Nixon Administration decided that America needed to get rid of its industries by exporting them.

while I can't help feeling a little twinge of schadenfreud about seeing MBA's in the unemployment office, or competing with them for nine-dollar-an-hour temp jobs, it's not a trend that will reverse itself, and America is on the slide to becoming a third-world nation.

I read on the news recently their going to increase retiring age to 75. Old people are going to live forever and ever. :)

No kidding...while I can't help feeling a little twinge of schadenfreud about seeing MBA's in the unemployment office, or competing with them for nine-dollar-an-hour temp jobs, it's not a trend that will reverse itself, and America is on the slide to becoming a third-world nation.

Actually I have to disagree with you. The problem isn't enviromentalism, service industries or outsourcing. The problem is spending.

I personally feel that despite America's belief in persuasive individualism and liberalism, it is really a socialist backwater. The ideals it was built on have been sucked up into big government.

America has two problems to deal with if it wants to make the CAD safe, reign in the budget deficit and control consumer credit.

The US government has to deal with the exchange rate which is overvalued and serious economic reforms, including inflation targeting.

I also believe the US should sign Kyoto...

And to think that my currency is pegged to the USD. Freaks me out somewhat...

Anyway, one more question......what is the purchasing power parity and what is its relationship with free floating exchange rates?

THANKS EVERYBODY!! :D

I have an Economics exam on thursday, i am bound to fail. I hate the LSE!

I have an Economics exam on thursday, i am bound to fail. I hate the LSE!

LSE? Tell me more! If I pass my exams I might go there! :cool:

Actually I have to disagree with you. The problem isn't enviromentalism, service industries or outsourcing. The problem is spending.

I personally feel that despite America's belief in persuasive individualism and liberalism, it is really a socialist backwater. The ideals it was built on have been sucked up into big government.

America has two problems to deal with if it wants to make the CAD safe, reign in the budget deficit and control consumer credit.

The US government has to deal with the exchange rate which is overvalued and serious economic reforms, including inflation targeting.

I also believe the US should sign Kyoto...

Signing Kyoto would just finish the job of destroying what production generators we have remaining, Outsourcing is a genuine problem, Farmina-it's a problem because it "levels out" wages in a negative direction, which is bad from a utilitarian standpoint if you presume that the purpose of Economic policy is to serve the general welfare of your citizens.
"Free Trade" simply lowers living standards to the level of the LCD, or Lowest Common Denominator when it is combined with shoddy education, punitive Tort structures, Punitive taxation (that manages to miss the upper .1% who put it into place), irrational Environmental Standards, and no-thought-or-judgement-required Workplace regs (that don't apply in most of the places the industries are being shipped off to.)

When Labour is a Price-Taker, the Workers are screwed, and with them, their families, and anyone else who relies upon their income (including small businesses.)

Socialism without a Capitalist Engine soon runs out of the stockpile and collapses. why are the European nations having to import workers? because their citizens can loaf off on the dole indefinitely at a subsistence level, or work and pay upwards of 40% tax for the privelage of holding a job.

This may work fine in Europe, with protectionist trade practices, but open those markets as wide as America's, and Western Europe will look like the worst parts of Rumania inside of a generation.

Big Government is only a minor contributor, (if it contributes at all) to prosperity, and it still relies on private industry to produce the actual wealth that it collects and redistributes.

The pie is shrinking, you can only redistribute so much before you come up short-we're short, it's well-hidden, but inevitably, someone is going to starve if Wealth is not generated in sufficient quantities. You don't generate Wealth by magick, it requires production. Less Production=Less Wealth to redistribute.

You can only go so far washing each other's socks.

And to think that my currency is pegged to the USD. Freaks me out somewhat...

Anyway, one more question......what is the purchasing power parity and what is its relationship with free floating exchange rates?

THANKS EVERYBODY!! :D

Absolute purchasing power parity says that all nations will face the same price for the same good. The theory behind this is if the nations face different prices then people will be able to buy a good in one nation and sell in another, forcing the prices back together.
P=SP*
P=domestic price
S=direct exchange rate
P*=foriegn price

This does not hold in real life.

Relative purchasing power parity is a variation of this. It realises that trade barriers and the like will stop prices being equal. Instead it says that prices will change by the same amount, from one equilibrium to another.

Domestic Inflation=Foriegn Inflation+Depreciation in the Exchange Rate

This holds in the long run.

If a nation has a floating exchange rate then foriegn inflation can be absorbed as an exchange rate appreciation. If the exchange rate is fixed then: Domestic Inflation=Foriegn Inflation; as Exchange Rate is constant.

Absolute purchasing power parity says that all nations will face the same price for the same good. The theory behind this is if the nations face different prices then people will be able to buy a good in one nation and sell in another, forcing the prices back together.
P=SP*
P=domestic price
S=direct exchange rate
P*=foriegn price

This does not hold in real life.

Relative purchasing power parity is a variation of this. It realises that trade barriers and the like will stop prices being equal. Instead it says that prices will change by the same amount, from one equilibrium to another.

Domestic Inflation=Foriegn Inflation+Depreciation in the Exchange Rate

This holds in the long run.

If a nation has a floating exchange rate then foriegn inflation can be absorbed as an exchange rate appreciation. If the exchange rate is fixed then: Domestic Inflation=Foriegn Inflation; as Exchange Rate is constant.

Sounds like something I don't have to know for the exam...why the heck is it on the syllabus????

Muahahahahaha....thanks a lot!!!! *smooches*

And I am very screwed.

I especially don't understand the functions and problems about the balance of payments. Help????? :confused:

Neither does George Bush. :)

Neither does George Bush. :)

YAH! IF I PASS MY ECON I CAN PROVE MYSELF SUPERIOR! I MUST PASS IT THEN!!! :mad:

Signing Kyoto would just finish the job of destroying what production generators we have remaining, Outsourcing is a genuine problem, Farmina-it's a problem because it "levels out" wages in a negative direction, which is bad from a utilitarian standpoint if you presume that the purpose of Economic policy is to serve the general welfare of your citizens.
"Free Trade" simply lowers living standards to the level of the LCD, or Lowest Common Denominator when it is combined with shoddy education, punitive Tort structures, Punitive taxation (that manages to miss the upper .1% who put it into place), irrational Environmental Standards, and no-thought-or-judgement-required Workplace regs (that don't apply in most of the places the industries are being shipped off to.)

When Labour is a Price-Taker, the Workers are screwed, and with them, their families, and anyone else who relies upon their income (including small businesses.)

Socialism without a Capitalist Engine soon runs out of the stockpile and collapses. why are the European nations having to import workers? because their citizens can loaf off on the dole indefinitely at a subsistence level, or work and pay upwards of 40% tax for the privelage of holding a job.

This may work fine in Europe, with protectionist trade practices, but open those markets as wide as America's, and Western Europe will look like the worst parts of Rumania inside of a generation.

Big Government is only a minor contributor, (if it contributes at all) to prosperity, and it still relies on private industry to produce the actual wealth that it collects and redistributes.

The pie is shrinking, you can only redistribute so much before you come up short-we're short, it's well-hidden, but inevitably, someone is going to starve if Wealth is not generated in sufficient quantities. You don't generate Wealth by magick, it requires production. Less Production=Less Wealth to redistribute.

You can only go so far washing each other's socks.

Kyoto isn't that economically destructive. All other nations can reach its targets, excluding America. Someones doing more than their fair share of polluting.

Outsourcing is a symptom not the problem. Plus it does force up wages in poorer nations, so rich nations can have goods cheaper.

Statistics show that free trade improves conditions for the poorest countries, not worsens. America spends more on sugar subsidies than entire sugar producing nations GDP; crushing nations GDP.

why are the European nations having to import workers? because their citizens can loaf off on the dole indefinitely at a subsistence level, or work and pay upwards of 40% tax for the privelage of holding a job
I'm not sure what this had to do with. I'm against progressive taxes and social welfare, well more to the point I'm not for them.

And America is producing more wealth than ever before, so don't give crap about starving.

YAH! IF I PASS MY ECON I CAN PROVE MYSELF SUPERIOR! I MUST PASS IT THEN!!! :mad:

It wouldn't be hard to beat Bush in an economics exam.

Muahahahahaha....thanks a lot!!!! *smooches*

You better be damned good looking.

It wouldn't be hard to beat Bush in an economics exam.

Bush would pass, once he's paid the examiners off.

Yeah.. Econs is the easiest. You shouldn't have any problems. :p

It's really easy as long as you tie up the loose ends properly, and always write on both sides of the question (for the bugger marks qs) and a conclusion (well..assuming you have at least some basic knowledge of course :P)