International Business Chapter Appendix Economy System International Trade
International Business Chapter Appendix Economy System & International Trade Lectured by: Chhay Kongkea, Ph. D. Degree in Economics, Majoring in Agricultural Economics From Department of Agricultural Economics, Graduate School, Chonnam National University, Gwangju City, South Korea. 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 1
Four Market Arenas TIp. Sar. TMnij nig esvakmµ (Market For Goods & Services) TIp. Sar. Rb. PBFn. Fan (Resources Markets / Inputs Market) TIp. Sarhir. BaØvtßú (Financial Market / Money Markets) TIp. SarbþÚr. R)ak; 9/25/2020 (Foreign Exchange Rate Market) Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 2
Markets For Goods and Services Firms supply Goods and Services Market Household, Firms and Government purchase Goods and Services 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 3
Market for Factors of Production Households supply Inputs Market for Factor of Production Firms and Government demand labor 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 4
Financial Markets Households supply funds Financial Markets Households, Firms and Government demand funds 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 5
Foreign Exchange Rate Markets • The exchange rate between two countries is the price at which residents of these countries trade with each other. • In the market foreign-currency exchange, U. S. dollars are traded foreign currencies. • US$ 1 = Cambodian Real 4100 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 6
Rb. B½n§énesdækic© (Economic Systems) esdækic©Epnkar esdækic©EbbsgÁmniym esdækic©kumúµúyn. Isniym esdækic©Ebbh. Vas. Iusniym esdækic©c. Mru. H esdækic©TIp. Saresr. I (Planning Economy) (Socialism) (Communism) (Fascism) (Mixed Economy) (Free Market Economy) 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 7
Income Resources Business Firms Households Goods and Services Expenditures Solid Lines - Flow of Money Dashed lines - Flow of Goods and Services 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 8
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Demand Description Consumption + Private Investment + Government Expenditure + Excess of Exports over Imports Gross Domestic Product (GDP) + Supply Description Income Description Agricultural Production Wage + + Industrial Production Interest + + Production of Services Rent + + Government Production Profit Gross Domestic Product (GDP) GDP Net Income Transfers Abroad Gross National Product (GNP) 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 13
Production Function and Theories of Growth Output = A f(Labor, Capital, Land) The Standard theory of Growth-Classical Growth Model Saving Investment Increasing in Capital Growth Tax Income in hand Investment Saving Y 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 14
The Flow-of-Funds through Financial Markets Household Saving SH = Y*-T-C Financial Markets Investment Demand I Government Saving SG = T-G Foreign Saving SF = -NX 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 15
Consumption Function: C = C 0 + c. Y Co = Autonomous Consumption/Expenditure c. Y = Induced Consumption/Expenditure c = Marginal Propensity to Consume (MPC) Y = Income Investment Function: I = I 0 + m. Y Io = Autonomous Investment m. Y = Induced Investment m = Coefficient Y = Income 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 16
AD = Y = C + I + G + NX AD = aggregate demand C = consumption I = investment G = government spending NX = net exports , (NX=exports – imports) YD = C + S YD = disposable income S = savings YD = Y + TR – TA Y = national income TR = government transfer payments TA = government taxes 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 17
1. Substitute given equations into equation for AD: YD = Y D C + S = Y + TR – TA C = Y + TR – TA - S AD = C + I + G + NX = (Y + TR - TA - S) + I + G + NX 2. Apply equilibrium condition: Y = AD 3. Substitute solution for AD from Step 1: Y = Y + TR - TA - S + I + G + NX Simplify equation: G + TR - TA = S - I - NX 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 18
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Low Per Capita Income Low Productivity Rapid Population Low Level of Saving of Demand Growth Low Levels of Investment in Physical and Human Capital Figure. The Vicious Circle of Poverty Low per capita incomes make it extremely difficult for poor nations to save and invest, a condition that perpetuates low productivity and low incomes. Furthermore, rapid population growth may quickly absorb increases in per capita real income and thereby may negate the possibility of breaking out of the poverty circle. 9/25/2020 Lecturer: Chhay Kongkea, Ph. D. Intermediate Macroeconomics 21
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