I promised to raise some issues for clarification with the list.
I am currently updating my notes on macroeconomics in general and exchange
rates in particular - a topic students and me do not enjoy: lots of traps.
Can I check my understanding of the link between the balance of payments and
aggregate demand?
Current account and aggregate demand is simple: spending on current output
exports (X) or withdrawal form the circular flow imports (M)
But what about the capital & financial account flows eg direct investment or
portfolio investment? Eg Inward investment is the purchase of UK assets by
non residents. We are now dealing eg with the purchase of fixed assets,
shares, property ie expenditure on non current output. No X or M?
And how to treat speculative flows. I assume speculative moving of funds
from $ to £s from New York to London is a financial flow and so part of the
capital account in the balance of payments. No purchase of a current output
so no X or M?
Yet I cannot help thinking that inward investment and a huge influx of
overseas currency will impact in some way on aggregate demand - but how. If
only I had gone to those international trade lectures or read the last few
chapters of every economics textbook where they seem to bury stuff like this
:-)
Over to you econ pointy heads
Regards
Richard Young
AST Teacher of Business Studies, Economics & ICT
Deputy Head of VI Form - Year 12
Wood Green School
Woodstock Road
Witney OX28 1DX
Tel 01993 702355
Fax 01993 774961
www.woodgreen.oxon.sch.uk
BECTa/Guardian Secondary School Web Site of the Year 2001
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