Economics Cheat Sheet

by shazma.n via cheatography.com/149997/cs/32537/

Topic 1- National Income Accounting & BOP Topic 1- National Income Accounting & Topic 4- Price Levels & Exchange Rate in
BOP (cont) LR
National gross Y=C+I+G+CA
Income domestic Credit Entry any transa​ction exports Purchasing explains movements in the
Identity product is resulting in of goods, Power exchange rate between two
given by receiving services, Parity countries’ currencies by
consum​ption payments from assets changes in the countries’
expend​itures, foreigners price levels
plus Debit Entry any transa​ction imports Absolute identical E= P/P*
investment resulting in of goods PPP basket of
expend​itures, making services, goods
plus payments assets should be
government sold for
Components Current CA+KAn​‐
expend​itures, same
of BOP Account, on+​Cap​‐
plus exports, amount of
Accounts Financial ita​lAcc= -
minus imports money in
Account, ORT
National the amount of S= Y-C(Y-T)- Capital Account diff
Savings output that is G or S= countries
Current shows the CA= EX-
not devoted to Sp+Sg or when
Account difference b/w IM+ Net
private S=I+CA expressed
exports and Unilateral
consum​ption in same
imports of Transfer
and currency
goods and
government Relative % Δ in Ee-E/E= π-π*
services plus
spending PPP exchange
net unilateral
Balance records a *every intern​‐ transfer rate
of country's ational between 2
Financial difference b/w KA=
Payments intern​ational transa​ction currencies
Account sales & KAnonr​‐
transa​ctions enters the over many
purchases of es+ORT
with the rest BOP period
assets to
of the world in accounts equals to
foreigners
a given time twice, once the inflation
Non-re​serve the purchases & sales of
period- as a credit rate differ​‐
Portion assets by the private sector
records its and once as entials
payments and debit Reserve the purchases foreig​n- between 2
recepits from Portion & sales of c​urrency countries
foreigners and foreign assets denomi​‐
Monetary shows PPP holds, LR
shows by the country's nated
Approach factors that Model, shocks
demand and monetary assets
to affect MS are permanent
supply of a authority held by
Exchange and MD will
country's central
Rate play a role
currency in banks
in determ​‐
FEM ining
exchange
rate
Equili​brium E= (MS/MS )
exchange (L(Y,R)/(L(R,Y)
rate

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 Economics Cheat Sheet
by shazma.n via cheatography.com/149997/cs/32537/

Topic 4- Price Levels & Exchange Rate in Topic 2- Asset Approach to Exchange Rate Topic 2- Asset Approach to Exchange Rate
LR (cont) (cont) (cont)

Domestic MS Exchange DC Covered agents can lock in the R= Ee-E/E annualized percentage change
Increases rate deprec​‐ interest future exchange rate by R*+ in the DC/FC exchange rate
increases iates Rate getting a forward F- R*+E - e
expecting DC return on FC
Foreign MS Exchange DC Parity contract & elimin​ating E/E E/E deposits
Increases rate apprec​‐ uncert​ainty
Increase R curve shifts Capital
decreases iates Real the rate at which its value in right, invest in inflows & DC
Domestic Exchange DC Rate of expressed in terms of a repres​‐ Domestic DC Deposit apprec​iates
Interest Rate rate deprec​‐ Return ent​ative output basket is Interest
increases increases iates expected to rise
Increase R* curve shifts Capital
Foreign Interest Exchange DC Expected the rate at which the value of in right, invest in outflows &
Rate increases rate apprec​‐ ate of an investment in the asset is Foreign FC deposit DC deprec​‐
decreases iates return expected to rise over time Interest iates
Domestic Output Exchange DC Arbitrage the process of buying a Expected R* curve shifts Capital
increases rate apprec​‐ currency cheap and selling it Deprec​‐ right, invest in outflows &
decreases iates dear iation of FC deposit DC deprec​‐
Foreign Output Exchange DC Asset IPR holds & deals with financial DC iates
Increases rate deprec​‐ Approach capitals Forward parties agree to exchange
increases iates Focused on money mkt shocks Trading currencies on some future date
and impacts on exchange rate at a pre-ne​got​iated exchange
Topic 2- Asset Approach to Exchange Rate (SR & LR) rate

Exchange the price of EDC/FC=1/EDC/FC R, return on DC deposits Spot trades are settled immedi​ately
Rate one domestic Trading
currency in interest
terms of rate Genera​lized Approach (real exchange rate,
anothe​r(D​‐ q)
C/FC) Real measures shows how
e
Forward the R= R*+E -E/E exchange the many baskets
exchange exchange rate, q purchasing of domestic
rates rate that is power of a goods are
contracted country's needed to
today for currency exchange one
the relative to basket of
exchange another foreign goods
of country's q= E(P/P*)
currencies currency
at a If q real deprec​iation of DC
specified increases
date in the
If q real apprec​iation of DC
future
decreases
Interest the condition that the expected
Parity returns on deposits of any two
Condition currencies are equal when
measured in the same
currency

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 Economics Cheat Sheet
by shazma.n via cheatography.com/149997/cs/32537/

Genera​lized Approach (real exchange rate, Topic 3- Money, Interest Rate & Exchange Topic 3- Money, Interest Rate & Exchange
q) (cont) Rate (cont) Rate (cont)

q=1 Absolute PPP q= E(P/P*) Y real when income Exchange the immediate deprec​iation of
q=0 Relative PPP qe-q/q=0 income= increases, Rate a currency to a shock is
real GDP consum​ption Unders​‐ greater than its long run
If AD domestic goods PPP of DC
increases, hooting response
increa​‐ are more increases
volume of transa​‐
ses​-do​‐ valuable and real
ction increases
mestic apprec​‐
iation of Interest R= r+Π
DC rate-
fisher
If AD* domestic goods PPP of DC
increa​‐ are less valuable decreases Money MS/P= R adjusts to
ses​-fo​‐ and real market L(R,Y) ensure the
reign deprec​‐ equili​‐ money market is
iation of brium in equili​brium in
DC SR

Genera​‐ considers how in the LR If MS Pressure for R to fall to initial

lized changes in both changes in increases level
Approach monetary and q, changes If real Consum​‐ L(R,Y) increases
real sides of the in P and P* income Y ption and R increases
economy affect lead to a increases increases
LR exchange change in and we
rate E hold more
money
Topic 3- Money, Interest Rate & Exchange In the P= P= MS/L(R ,Y*)
Rate long run MS/L(R,Y)
Money the total amount of Currency Quantity %Δ MS+%ΔV=
Supply currency and in circul​‐ Theory of %ΔP+%ΔY
checking deposits ati​on+​‐ Money
held by Demand
Level no change in MS
households and Deposit
change in means no
firms
MS change in Π
Aggregate the toal demand Md= doesn't
Money for money by all L(R,Y) impact
Demand households and %Δ in MS
firms in the
Exchange immediate response to a
economy
Rate distur​bance is greater than its
L(R,Y) liquidity function Oversh​‐ long-run response
R nominal interest opport​‐ ooting
rate unity
cost of
holding
money

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