CO SCI 136 Lecture Notes - Lecture 24: Transaction Cost, Cif, Opportunity Cost
Document Summary
Price = slope where indifference curve meets ppf curve. Implies excess demand when at full capacity: gains from trade are exploited, depends on type of goods. Negative: can signal lack of competitiveness, foreign debt as consumption > production. Can finance ca deficit to finance consumption. Implies capital inflow and therefore attractiveness for financial investments. Low interest rate and lack of attractiveness for investments. Country is building up international reserve assets and can intervene at forex markets to stabilize currency. May be incurring large debts to foreign central banks. Possible misalignment risk of foreign exchange rates (exchange rate risk) Structural problems (bubble in economy => sales expectations, investment) Trade policy trends (export promoting policies, protection from imports, capital controls) High likelihood of trade policy reforms => uncertainty. Autonomous transactions: done from individuals / firms for their own purpose (ca + fa + stat) Y = c + i + g+ (x-m) Y = c + i + g+ current account.
