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BALANCE OF PAYMENTS

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B alance of payments  is the measure of money inflows and outflows between the United States and the Rest of the World (ROW). Inflows are credits and outflows are debits . The balance of payments is divided into three accounts: current account , capital/financial account , and official reserves account . Current Account b alance of trade or net exports exports of goods/services - import of goods/services exports create a credit to the balance of payments imports create a debit to the balance of payments n et foreign income income earned by U.S. owned foreign assets - income paid to foreign-held U.S. assets ex: interest payments on U.S. owned Brazilian bonds - interest payments on German-owned U.S. Treasury bonds n et transfers foreign aid -> a debit to the current account ex: immigrant migrant workers sending money to family back home Capital/Financial Account  balance of capital ownership includes the purchase of both real and financial a
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LOANABLE FUNDS MARKET

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The loanable funds market is where savers and borrowers exchange funds at the real interest rate (r%) demand for loanable funds , or borrowing , comes from households, firms, government, and the foreign sector. The demand for loanable funds is, the supply of bonds supply of loanable funds , or savings , comes from households, firms, government, and the foreign sector the supply of loanable funds is also the demand for bonds D emand for loanable funds = borrowing (supplying bonds) , c hanges in the demand for loanable funds occur when there is: More borrowing = more demand for loanable funds  ex: government deficit spending = more borrowing = more demand for loanable funds, therefore r% increases Less borrowing = less demand for loanable funds  ex: less investment demand = less borrowing = less demand for loanable funds, r% decreases supply of loanable funds = saving (demand for bonds) , c hanges in the supply of loanable funds occur when: More
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MONEY MARKET

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The money market is where the Federal Reserve and the users of money interact, which determines the nominal interest rate (i%) and is made up of two parts: Money demand (MD) which comes from households, firms, government, and the foreign sector Money supply (MS) which is determined only by the Federal Reserve Money demand is divided into three parts: Transaction demand which is the demand for money as a medium of exchange (independent of interest rate) Asset demand which  is the demand for money as a store of value (dependent of the interest rate) Total money demand MD is downward sloping because at high interest rates people are less inclined to hold money and more inclined to hold stocks and bonds At lower interest rates people sacrifice less when they hold money Money supply is determined by the Federal Reserve because the Federal Reserve has control over the supply of money If you still don't understand, here's some vids 2 help
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MONEY

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MONEY THE FUNCTIONS OF MONEY: Medium of Exchange      S erves to trade one product for another    Store of Value      Money hold its value over a period of time Unit of Account       Establishes economic worth TYPES OF MONEY: Commodity Money   Get its value from the type of material that its made with    ex: gold and silver Representative Money   Paper that its backed by something tangible, that gives it value Fiat Money   "Money because the government says so" CHARACTERISTICS OF MONEY:      Durability       Portability  Divisibility  Uniformity     Scarcity  Acceptability   Limited Supply MONEY SUPPLY:      M1 MONEY:    It consists of currency in circulation    Ex: cash and coins   "Liquidity" is easy to convert to cash    Checkable Deposits    Checking accounts demand deposits    Traveler's checks  M2 MONEY:   Consists of M1 money + savin
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FISCAL POLICY

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FISCAL POLICY Fiscal policy   - is the changes in the expenditures or tax revenues of the federal government - it is carried out to promote our nation's economic goals: full employment, price stability, and economic growth.  There are two parts of fiscal policy : t axes --government can increase or decrease taxes spending --government can increase or decrease spending Deficits, surpluses, and debt : Balanced budget Revenues = Expenditures Budget deficit Revenues < Expenditures Budget surplus Revenues > Expenditures Government debt Sum of all deficits - Sum of all surpluses  The government borrows from: Individuals Corporations Financial institutions Foreign entities or foreign governments The two options for fiscal policy are : Discretionary fiscal policy (action) Expansionary fiscal policy -- think deficit Contractionary fiscal policy -- think su
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