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AP Macro Review Session 6 (Chapters 7, 35-37)

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Foreign Markets - Foreign Exchange and Balance of Payments/Trade

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all right there what is the last four you session this one don't think this one's going to be very long just because there's not a whole lot that goes into the last unit of study as far as macro is concerned the last unit is dealing with foreign markets  so we deal with foreign exchange and whatnot I'll go through this how to set it is 7 and 35 - 30 and your checkbook so make sure you're going there at also coincides with that last unit in your AP macro workbook that you had sex  so goodness gracious that went fast things you have to remember what is the Cavaliers concern as you're talking about exports versus import if you're dealing with export through dealing with goods and services created domestically and sold to a foreign market in some sort of way if you're dealing with Imports you're looking at goods and services created by foreigners there going to be sold here so going back to GDP when you talk about net exports you're talking about exports minus Imports looking at the difference between the exports of goods and services and the importance of business business services based on this trade of exports and imports countries can either have a trade deficit or a trade surplus do you have a trade deficit your exporting less than your import you're going to have with also known asking for a trade Gap do you have a trade surplus you're going to export more than you're going to import so you're finding a lot more out then you're going to have coming in in a good example of a country that has a very large is trying to do a lot of that with the United States  caifanes whenever you're talking about this when Market is you're talking about interest rates in capital float when you're dealing with a net capital flows as you're dealing with difference between the amount of money coming into a country to buy domestic acid and the amount of money leaving a country to buy for an acid the same geode export-import but you're looking at money with intentions to purchase different things so you're looking at those particular asset what asset for buying here versus what assets are being purchased abroad you have your Capital inflows your cowgirl outfit you're looking at inflow money coming in going in it's coming in so that could buy things domestically if we're talking about Capital outflows retirement money going specifically to buy things from a foreign country so things to remember with interest rate and your Capital flows they are going to be pretty much opposites of each other as your interest rate goes up the money coming in to country is going to increase while the money going out of the country to buy a bra she is going to decrease as those in shrinks go down capital inflows or going to go down where as your outflows are going to go up what do we do with this we have to talk about balance of payment when we talk about what's the payment we're talking about it says it says a summary of all International transactions Within given year so you're looking at the difference between the country's current and financial account that is something to you there so you have to know what a current account University financial account if you're dealing with a current account you're looking at measuring at your good and services and international trade that is important there so  you also need consider investment in, you should consider net transfer payment so current account is measuring  these particular type two thing where is your financial count you're looking at financial asset in bed so you're looking at the trade that happens with the bond real estate when you dealing with current account you're dealing with the actual trade in goods and services the actual investment income the net trance working at things in a different manner so you have a list of things on the right identifying are these current or Finance account so if you have a company here in the United States they selling in Canada that is a purchase you're looking at some international trade in a good or service so that is a current account you're dealing with a US company that buys a beach resort in Mexico that is going to be a financial count because now we're dealing with real estate  if you have a Chinese company selling toy in the United States are dealing with Goods Services current where's the American on vacation by Japanese Government Bond that's Financial  The Immigrant live in the United States since his earnings to his family overseas and then that is a little bit different because is actually one two three four five that is actually going to be referred to as your current account because it's something called remittent the idea that people from other countries come here working they send that money to their family it's still considered to be part of our current account but it's referred to as a remittance portion of our current account you have a company produce and sell cars in the United States the idea here is that that is neither because it is not happening on an international current account and financial account pacifically tells you it's measuring international trade if a company here makes a product and Elke red velvet here you're not participating in either one of these you have an Italian tourist buy souvenirs in the United States we're dealing with current account as well because that is an international trade that is going to take place so the idea here is that you need to able to identify if there is a session of current account or financial account which one is it that they're talking about good thing that they talk that we talked about in our foreign markets as we talking about foreign exchange  you need to be able to identify sing with Onyx and if you if you were told to draw Foreign Exchange Market for a currency relative to an another Curran you're going to drive like a supply and demand curves you going to have your downward sloping demand line in your upper sloping supply line your her class is going to be this case we have armed foreign market $4 relative to to Yen so it's dollar to yen over here and on the bottom you have your quantity I'm of Yen okay so draw the Foreign Exchange Market for the US dollar relative to Japanese Yen you have it drawn here show what happens to the value of the dollar of Americans want more Japanese product the ideas if we want Japanese products Americans are going to supply dollars to get back into the able to provide to be able to get those Japanese products so what's going to happen to the supply of yen is going to increase over to the right which then brings down the value of the yen to dollar so we need more yin and we have a lower price here so that is what we call the depreciation of the dollar the value of the currency to another is going to start to decline so this is another way of looking at the pine to man it is just we're looking at it in terms of demand Corinthians dead  so it would not surprise me if you see a free response with your Foreign Exchange Market just because yes they like to ask it if becoming a topic that you seem current event lately so it wouldn't surprise me at all for you to see that so you have your relation and shifters when we talked about valuation we're either talking about is the currency experiencing appreciation or depreciation if you have a stration of the currency is that what that means is that the value of your currency relative to a foreign currency is beginning to you need less of your dollars to get that one if you'd appreciate the valley of your currency relative to another one is starting to decline so our example here was that we needed more of our hours to be able to get Japanese yen in that sense that we're experiencing depreciation what happens when you shift your foreign exchange model there are things that can shift it  and I gave you examples of them as I went through so have change in taste so when you have situations like I have British tourists are flocking to the United States that means that with this particular situation people in another country have changed their Viewpoint about traveling from place to place so taste test changes in relative income resulting in more Imports in this case United States gross increases income that would be a change in relative income  changing relative price level resulting in more Imports in this case examples that us prices increase relative to British prices what that means is that the price level here in the United States are now rising to a price level simmers what you're going to see in Britain so changes in relative price level going to change your foreign changes in relative interest rates so if the United States has a higher interest rate than Britain you're going to see changes and your foreign exchange because of that particular situation  interest rates and foreign exchange so if you're told Ross wanted change market for what they in this case it's Mexican pesos vertical axis we have dollars in pesos and you have your quantity of pesos you're on the bottom you have your demand for your demand for pesos and your supply for pesos so what happens to the value of pesos relatives United States dollars interest rate in Mexico increases what happens to the value of pesos relatives u.s. dollars interest rates in Mexico increased happened to miss that Americans are going to demand more financial acid in Mexico it's going to be cheaper for me to be able to do things in Mexico so if I wanted to buy beachfront property in Mexico interest rates are really interest rates are it yes interest rates or increasing their but they're not going to be as high as they are here in the United States  they can earn a higher rate of return at home supply list pesos in this dense so what happens is that you see a decrease in the supply of pesos but you see an increase increase in the demand for the pace so you see that double shift happening in that particular situation so some things to practice interest increase if American troops increase visit to Japan the supply of the US dollar will increase and the demand for Japanese Yen will increase as well the dollar will depreciate while while I totally add an extra letter men will appreciate instead United States government significantly decreases personal income tax the dollar will depreciate the Yen will all these are comparisons of dollars again if inflation in Japan Rises significantly faster than it does in the US prices are going up faster in the US and they are here and what's going to happen is that the dollar will will appreciate and the when is going to depreciate that take more yen to pay for the same thing if Japan has a large budget deficit that increases Japanese interest rate the dollar is going to depreciate the Yen will appreciate if Japan place is high tariffs on all us Imports the dollar is going to depreciate we're going to need more dollars to go ahead and pay for things in that sense the yen is going to appreciate because they're good to be more valuable now United States suffers a large recession what happens here is that we have an appreciation of the dollar and imports us suffers a large recession the dollar will appreciate the yen is going to depreciate instead okay so it's being able to identify those particular types of things you have to think of in the sense of in these particular situations that are described to you are they asking you  questions about like will I need more dollars or will I need more of the burnt foreign currency that can help you identify your appreciation for appreciation versus depreciation if a country occurred if a country's currency appreciates and what happens is that net exports are going to decrease the idea here is that I'm not going to send as much overseas and they're not sending as much over here a country's current CD appreciate the opposite will happen net exports will increase businesses are going to want to sell over there instead u.s. dollar appreciate relative to another currency of demand for the dollar increases or if Supply decreases is causes exports to decrease and imports to increase and then the opposite is true do US dollar depreciates relative to the current see if demand for the dollar decreases in the supply increase this is caught going to cause your exports to increase in your Imports to decrease not much left here this is our last this is our last real slide of information about foreign exchange rate stuff if you experience something called us how many exchange rate it means that the value of your currency is going to be to fluctuate according to what's happening in the market this is typically what see happening here with us is that our government is not manipulating the actual currency there is a market value the current nuc that with a lot of other different countries if you have fixed exchange rate what happens is that the government is getting involved in that exchange rate stays exactly the same the government manipulating things keep them out of very specific level so why does this happen wants to keep their currency depreciates that they can promote trade and this that's what they're trying to do is saying that it's cheaper in some areas for you to be able to do it so they buy other currencies to increase the supply of their current end up better in their particular situation and like I said the Forum Market aspect of this very short there's not a whole lot that goes with it review the stuff in your workbook for unit review the stuff in your textbook for chapter 35 through 37 look at that stuff now your AP Central frequently response questions by top based on this information you're looking at topics and foreign exchange and balance of trade you can see balance of trade payment  Dale a Skittle and if they do ask if it's only going to be one small portion of one particular point of that particular question so you might have something that comes in with it review some of this information give yourself surprised with a couple of them you can tell that since 2009  I believe there was probably a 2008 question pretty much 2003 they have asked a question dealing with foreign exchange rates every single year and it's only going to be one portion of the question and they're likely going ask you what a country is going to do in this particular situation often times what happens is they go through and they start with a question about an 80s model when they ask about monetary or fiscal policy and ask about closing the Gap and they're going to give you a particular situation and ask what's going to happen to the change of currency in this particular situation that oftentimes is what you're going to see so be prepared to understand that appreciation versus deep an idea so you have an idea of are we going to demand more of that currency or we going to demand list of that particular currency to go with it as I finish up this last study session just reminder that your damn is on Wednesday May 10th you have the afternoon session if you're interested with AC there with mr. Clifford the guy who does ACDC become he is doing a livestream on YouTube tomorrow night it is 6 p.m. Pacific which is 6:10 p.m. our time he is doing a livestream on his YouTube channel so feel free to go check that out is doing macro tomorrow night and Mike Rowe on Saturday he also plans on doing flash reviews on Twitter the night before the exam so he's going to post the whole bunch of questions have you um quick respond to him if you want to do that if you need some help with something feel free to shoot me an e-mail on answer you as best I possibly can or email if you want to stop by my classroom make sure you come stop by and ask me any questions you have as you're sitting just a few tips or whenever you're taking your actual test answer every single question if you get to a question you just are not sure guess remember you only have 60 multiple choice questions you have three free response questions and it's a lot of information that you have to cover in those in that short test compared compared to other test the idea here is answer every single question every single multiple choice questions going to count for about 1% of your entire score a little like 1.1% majority of your score is going to come from off of the as many questions as you can answer as possible it will do you great deals later on here reminder that you can are only using a pencil on your multiple choice section of your test that is the first session that you're going to take blue or black ink is specific to the free response question and that especially to remember all of our rules that I gave you form this particular way of answering these particular free response question remember even if you only are going to use that for four lines of that first page for question 1 you still got to go to the next page that says answer for answer face for question 2 make sure you flip over to see that cuz remember these second and third question not to take you a whole lot of room to answer these particular questions are fairly short first question is going to take the bulk of your time to answer  remember anything you scribble in the actual test book not where you're putting your answers that's not going to be since you're doing your multiple choice and you draw yourself a little grass in the in the test booklet next to the question turn odd even going to see it go ahead scribble all in there try to get all that stuff done to help you get to the proper answer number there's no calculator there's no rulers you're on your own with that so I wish you all the best I hope to hear good things that you felt you were prepared for it you need to make certain you come by my classroom to return the textbook I need to have those back ID hate hate hate to have a situation where you now have a hole because you didn't give me that textbook just make sure you come bring a everybody's got to bring it backs up Abigail she gave me hers already so I wish you all the best that he hard and have a good evening guys

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AP Macro Review Session 6 (Chapters 7, 35-37)

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