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Introduction to Global Economic # acro studyingthe economy /markets - > > Principle All the spendings made by economic agents...

Introduction to Global Economic # acro studyingthe economy /markets - > > Principle All the spendings made by economic agents represents income - : Circular Flow >* Economic Economy ( * - >* Production : * Adding new Capital to the - * Labor (2) Capital , (PPE)money! Land , Activity) in& other * Pensions , unemployment benefits Production Factors privatings · * · Financial # Markets G& S comies Consumption (c) I economictransactions < Expertemparts happen net Investment * * C + I + 6 (Governmental + NX = GDP(Y) expicts) (he spending) ↓ Expots Imports - · When NX 0 - * Deficit : USA (imports much) NX > 0 - D Surplus : China (exports much) National Savings Private Savings Savings + Economy (NX 0) Public · Assume Closed = : = ① private Savings = INT TRA Y = C I+ 6 + ↳ I = Y - C - G ② savings -T public ↳ National = ers Savings = Investment ↳ Assume : Open Economy S National = (Y #+ +) - - C + (f - G (TR) S Swingsfrom- savings ↳S = Y - C - 6  GNP(Gross National Product) · Market value of the production of final goods & Services carried out in one year by domestically , , Nationality owned productive factors GNP GDP · Market value of all produced goods & services in 1 yearthe , located in the country · In the Short term GDP depends on the evolution of components of demand · "long" : Evolution of supply conditions (technological innovations , productivity of labor &capital) GDP = GNP Factors located in the + Income of Foreign country - Income of National Factors located abroad Economic growth : · Rate of increase in real GDP (Increased production of G & 5) Y - 4 9y = + + 1 Y - 1 + Economic Expansion & Recession Cycles · : National Income : factors of the Gross remuneration of all the productive economy · ↳ GNP-Depreciation (K) of Capital - Indirect Taxes + Subsidies (tied to production factors) Origin of Income : · From Labor : salary wages payments , , in kind From Capital profits dividends interests · : , , Disposable Income : NF-Direct Taxes + Public Sector Transfers to Families id = C+ S Aggregate Expenditore : GDP = C + I+ 6 + NX VALUE ADDED : Double Counting can be avoided when using this approach !  Economic & Economic Growth Cycles : M GPP Long-Run - : > - Producers-Side (4) Sources of (Reconomic growth : & Al - ↑ Stock of Capital > ② Technological Progress > - short-run : economic cycles sources of growth spendingcomponentsebe expectations : 4 Arevery impacted) Time > Minimizing Potential Recessionary time - GDP per capita can be decomposed : =GDPX worked x employmean employment total population ↑ per capita · & * labour market * productivity labor work intensity income per capita Session 2 : Inflation The increase in the level of prices in the economy > the percent increase in CPI aggregate · - · CPI (Consumer Price Index) Weighted average price : of a list of more than 3 hundred goods &services ↳ calculated relative to a base year Economists compute inflation data on a monthly basis · CPI determines for families · purchasing power average Inflation Why : % increase in CPI > · , Ttarget 2% - : : # + = CPI - (PI x 100 =...% ① Evolution of Salaries ("Sticky") > - Protect Purchasing Power - +. 1 CPI ② avoid a deflationary spiral->-EP- Y + -1 (expectation] (GDP) Eg Japan : If prices go VAT (the up , they collect more government) then employees askfor higher salories , (Den ich somehow Rest muss googeln) we have to If we have inflation nominal wages increase but to actually earn more · , , increase productivity  Sources for Inflation ①TAD ASz ↳> Pr Spending Components (C + 1 + 6 - NX) ↳ 4 savings consumed Ass - ②AS ↳ Contraction on production capacity ↳ Toil prices Solving Demand-driven Inflation is easier than supply > - i > Y (GDP) driven inflation YYs Yz · Core Inflation : Inflation rate eliminating the price of imported raw materials , fuel I unprocessed fo The costs of Inflation : 3 1 measure of the price level : GDP deflator Reduces the purchasing power wages of · GDP deflator 100 x Naminal GDP Makes economic difficult for families planning = & companies · - Real GDP Prices loose informative value may · Harms economic activity & creates uncertainty · Mainly huts money holders & favors debtors · Balance of Payments : & Current Account Balance (CAB) ↳ Transactions related to Trade , Capital Payments (Interest + Dividends) ② Financial Account Balance (FAB) ↳ Transactions related ofInvestments (Bonds Shares) fother to FDI , other types + monetary investments (Loans) Example : China Case Suplus ② ① 10 DelicitsInflows > (A) O Fa [s Inflows) Outflow - In monetary terms why : FDIT Example 2: (A = + 10 => Change on FX Reserves - 2 FA - 8 ↓ (Decrease) = Increase Always : Bop = 0 !  The Public Sector The Functions of the Government : Public Budget : · Preserve market competition A record of all revenues & expedities Correct suboptimal market outcomes · g ConsumptionTaxes) · Redistribution Revenues : Taxes (e. Fight recessions · (Trestments ) Ster the economy in the long run ·... Expenditures : Financing the Public Budget Deficit Monetization : Central Bank purchases public debt directly from the government · - - Forbidden in most developed countries to ensure independence of Mone- tary Policy Debt in bond markets to investors selling Public · excessive debt is not sustainable ? Why · PBB < 0 - > Issue public bonds (T Debt) 4 ↑ Interest Payments 4 ↑PBBLO Downsides of Public Debt Every extra E generates add interest : payments - -Siehe Slides !! Government spending (6) allows for strategic investments => (Infrastructure) ↓ Digital green, , reliable (EU-Covid-19)  Economic Policy (Class Session 2) ① Fiscal Policy (Siene Slide davor ② Monetary Policy (Central Banks Banking Institutions) monetary system 7 + Def : All policies that allow to control the quantity of money available in the economy for immediate use money? How do we create 1000E/Reservenient : 20 % in circulation (rc) currency = Step 1 * Bank 2 * * Bank 19 Find Effects Al : Money supply = 1000 = 5000 I Reserves : Zoot Deposit 1000: Reserves : 160E Deposits 800 Locns : 640E Cons : Sort A L ↳ Balance sheet of "Modern Bank" a · Reserves · Deposits cash received - in CB · Cons - deposits from other Banks - Cons given · - from (B · public Bonds · Corporate Bonds there is risk of deflation Tools : ① Conventional Monetary Policy Tools : when > official interest rate (0 % r) : Expansionary: ↓ 0 i reiTI- Topp) -contractionary -.... : Toir > - Ti - ** - ↓ Y auf dem Kredit- Wenn der Leitzins gesenkt wird , wird es für GB günstiger sich geld zu leihen was zu niedrigerenZinsen markt führt. Situation : Open Market Operations (GMO) 1- Minimum Reserve Coefficient (r ) > - > C ↳ Most used Tool for.. · Government monetary policy · Expansionary : Er C > ↑loans Expansionary - OMO (Buy. · > ↳ Public. : Budget - Deficits (G + TR > T) 1 · Contractionary : Fr.. C > - A loons Central $$> Banking Systemsie < Public Bonds ↓ need I · contractionary : - > OMO (Sell) Public Bonds Issues Public Bonds CB , Banking ( Public debt) I $$ System The CB can't buy public bonds in the market primary ② Unconventional Monetary Policy : of trust in the (sustainable?) h Banking System (Solvency) Public Debt level increasing lot - > a Implication : Transmission of conventional "broken" monetary policy was ① 0 1 5 =0 %.. > - An additional decrease on rates , does not generate an add demand for Coons. ② some banks "balance sheet"problems presenting of financial assets to force decrease Solution : The CB directly buying all types a on interest rates Case : Greece ! Government having to pay very high interest on debt ↳ CB market) d buysebt (secondary interest in the size of Demand Effect : Huge - ↓ the ECB/FED Balance Sheet interest rates effects : Negative ② very Inflationary if not stopped in time ② Potential creation of bubbles einem The Circular Flow and the Pandemic resort for the Note : The CB is also in charge of being the lender of last banking system maims panick to avoid financial China Case fran labor intensive capital intensive country country · > facts - FDI in China turns negative for first time in 25 years tese · re · Some disadvantages for FDI in China include : why : environment T -An ever-changing legal -Bureaucratic & administrative complexities -Aging population & Cultural differences High level of corporate indebtedness - -Production in several sectors overcapacity A lack of & weak intellectual transparency property rights protection - - Underdeveloped middle management  Chinas institutions should wak to make it attractive for companiesto Message gov move > - :. more production to China (Adding value design etc) :... > - This leads to economic development & hence higher salies (China started off with very low salories & today not that low anymore) discussed if Chinas economy is a big bubble ready to burst it is Today · , the U S is no langer the main trade partner of China (-13 %) ·. what's going on ? China is becoming the leading power of the world but still losing its - export power Europe & USA losing geopolitical power > - -The shock that the negative Chinese experienced was severe (Gronavirureak) China -Since the second wave , has been experiencing an economic slow-down -Americans see China increasingly Cake Added is important !!!) negative ! (less growth) Spannas losing momentum Two main indicators for Chinas deflation : (PI & Producers Price Index 2022 the consumer confidence index has been superlow Since July meaning that con- - , 3. sumers plan on spending less money > deflationary spiral - Chind : Imbalances & Vulnerabilities /Kreis hinzufügen O schild policy -  China is still need/demand for commodities developing hence they havethe ·... 160 % of by Chines worldwidedemand It dominates the critical raw materials market these causes value added selling · , I hall big mining dreas · Value Chain for critical raw materials : Extraction -> - Processing mining areas Country pushing hard to achieve transitions pollution level has declined · is > - air , trying to fight corruption although cases have been super high ! Public Institutions must promote transparency&n efficiency Shadow banking : Banks that are regulated banking institutions but still lend money Big portion · no. of debt attributed to those entities China's Economic Policy : · Expansionary Monetay P housing crises : , inflation , financially stressed > - ↓ i Ratio / Coefficient Cash Reserve decreasing the minimum reserve coefficient, · - effect banks amplifying the Government : calls rising to step up financial stimulus expansionary policy ! · , Driving up investments ($1 8 Trillion for infrastructure development). Made in China 2024 : · China wants to gain control /power over Taiwan > - Chip construction happens in Taiwan East Asia controls & US controls the · manufacturing of the chips design /US keeps value added pation) Production especially in Taiwan &this proves the interest > China solely assembles - , which explains the Taiwan controls over 90 % of the market (mainly used for military · , interest of Chinal