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Questions and Answers
What does the acronym OEM stand for in open economy macroeconomics?
Open Economy Macroeconomics
Define balance of payments (BOP).
Summary of economic transactions of a country with the rest of the world.
Which of the following are components of the balance of payments?
An open economy does not allow transactions with the rest of the world.
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Payments for goods and services are recorded as ______ in the balance of payments.
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Which of the following are macro aspects of an open economy?
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What is the role of the official reserve transactions (ORT) in the balance of payments?
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Study Notes
Learning Objectives
- Understand key macroeconomic theories and concepts relevant to open economies.
- Demonstrate knowledge of basic macroeconomic tools and concepts.
Open Economy Macroeconomics (OEM)
- OEM examines macroeconomic issues in economies that engage in international trade and finance.
- An open economy facilitates transactions with the rest of the world (ROW), including trade in goods and services.
- Key macroeconomic aspects include economic growth, inflation, unemployment, balance of payments (BOP), exchange rates, and international policy implications.
Balance of Payments (BOP)
- BOP is a comprehensive summary of a country’s economic transactions with the ROW.
- Includes payments and receipts for goods, services, and financial assets, as well as gifts and transfers without direct returns.
- Components of BOP:
- Current Account (CA): Tracks trade of goods and services, income flows, and current transfers.
- Capital Account (KA): Records transactions related to capital assets and investments.
- Official Reserve Transactions (ORT): Reflects transactions by the central bank that adjust a country’s reserves and often influence exchange rates.
Key Flows in BOP
- Debits: Represent money flowing out of the country, including imports, capital outflows, and interest payments on foreign borrowing.
- Credits: Represent money flowing into the country, including exports, capital inflows, and remittances from overseas Filipino workers (OFWs).
Trade Balance and Financial Transactions
- The trade balance (TB) is calculated as exports minus imports, indicating whether a country has a trade surplus or deficit.
- Financial transactions and capital movement are crucial for understanding shifts in the economy and international financial stability.
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Description
This quiz covers key macroeconomic theories and concepts relevant to open economies, focusing on international trade and finance. Understand essential aspects like balance of payments, exchange rates, and economic growth. Test your knowledge of the current and capital accounts.
