Study Guide for the Final Exam on Economics and the Global Environment - ESADE PDF

Department of Economics, Finance and Accounting Study Guide for the Final Exam Economics and the Global Environment MSc in International Management – MIM, ESADE Business School...

Department of Economics, Finance and Accounting Study Guide for the Final Exam Economics and the Global Environment MSc in International Management – MIM, ESADE Business School 1. Introduction to Global Economics. 1. Gross National Product (GNP): Market value of final goods/services produced by domestic factors of production. Real GNP uses base-year prices, removing the effect of inflation. 2. Gross Domestic Product (GDP): Total value of goods/services produced within a country. Components of the GDP. Difference between Nominal and Real GDP. 3. Economic Growth: Measured as the percentage increase in real GDP. 4. National Income (NI): GNP minus depreciation and indirect taxes, plus subsidies. 5. Inflation and Its Effects. Inflation: General increase in prices across an economy. Measured by changes in the Consumer Price Index (CPI). Inflation targets set by central banks (usually 2%) ensure price stability. Types of Inflation: Demand-driven: Caused by rising aggregate demand. Supply-driven: Triggered by decreased production. Hyperinflation: Excessive inflation exceeding 10% per year. Deflation: Negative inflation, leading to economic stagnation. 6. Unemployment. Unemployment Rate. Labor Force Participation Rate. Government functions include reducing unemployment, managing public spending, and steering long-term economic growth. 7. The Balance of Payments. (Review the General Intuition). Current Account: Tracks all economic transactions (goods, services, income) between a nation and the rest of the world. Financial and Capital Account: Deals with transactions in financial assets, such as investments and loans.  Department of Economics, Finance and Accounting Balance of Payments Equilibrium: Achieved when the current account deficit is offset by a financial account surplus. Change in the Foreign Exchange Reserves. 2. Macroeconomic Variables and Policy. 1. Fiscal Policy Tools and Goals. 2. Monetary Policy: Central banks, such as the ECB and the Federal Reserve, manage interest rates and the money supply to stabilize inflation and promote growth. Review all conventional policy tools. Non-conventional policies like Quantitative Easing (QE) were used post-2008 to inject liquidity into markets. Review the concept, when, how, and potential risks. 3. The Great Recession (2008-2009): Sparked by the U.S. housing market crash, which led to global financial instability. Governments responded with expansionary fiscal policies, increasing public spending to prevent economic collapse. 3. The European Economy. European Union (EU): A political and economic union of 27 sovereign states. Monetary Union (Eurozone): Countries using the euro as their currency. Stability and Growth Pact: Limits government deficits to 3% of GDP during recessions to ensure fiscal discipline. Next Generation EU – Recovery Plan. The Euro: Benefits include eliminating exchange rate uncertainty and fostering economic integration. Drawbacks include the loss of national monetary policy and constraints on fiscal policy. Concept of Optimal Currency Areas. Advantages and disadvantages. 4. China: Economic Policy and Transformation. (ONLY for Sections B & C). Economic Reforms: Made in China 2025: A policy to shift China from low-end manufacturing to higher- tech industries. Need to transition into a new productive model and the relevance of the semiconductors industry. Main imbalances and vulnerabilities of the Chinese Economy. The Taiwan Case.