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International finance

Learn the fundamentals of GDP, Ricardo's competitive advantage theory, and Balance of Payments in international finance. Explore how countries create and distribute wealth and the purposes of economics in modern societies. Gain insights into the stability and instability of the global economy and the importance of measuring GDP. Discover key figures on US and world GDP, population, and GDP per capita.

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International finance

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  1. International finance Session 1 24 february 2004

  2. Presentations and marks • For groups of 2 or 3 people • Propose, for next time, a topic (any subject related to the international economic situation) • Marks • Work • Clarity of presentation • English • Synthesis • We will select dates for the presentations (15 mn + discussion) • At the end of the semester there will be a little complementary presentation by the same groups

  3. Today’s topics • Gross Domestic Products • Ricardo theory of competitive advantage • Introduction to Balance of Payments (BOP)

  4. GDP • Countries (all the citizens of a country) create wealth • And distribute their wealth, via the mechanisms of markets, and money • The idea of measuring this wealth creation dates from the early XXth century (Keynes suggested that) • The idea of measuring the quantity of goods and services produced by a country year after year is a recent one. • It is useful to pilot government policies, but it has severe drawbacks.

  5. Purposes of economics • Understand the conditions of creation of wealth and well-being in countries • Modern societies are based on exchange, so we study exchange (real goods and services and money and promises) • There is so much concern with making this production and exchange « efficient » that it may said that we live in merchant societies. • We are overwhelmed by billboards, prices, shops, ads, money discussions… • That is because in the Western world we live in societies that value very much production and consumption, and therefore exchange of a merchant nature.

  6. Stability and unstability • The world has never been as unstable as today (cf. the interest rate curve over the last two centuries) • China is the only country where today’s kids can read texts written 1500 years ago.

  7. GDP • It is a measure for every country every year of the wealth created • Since Economics purports to understand and create the condition of wealth creation, we must measure it • The Gross Domestic Product does it • It has severe drawbacks : the cleaning of pollution, created by economic activity, is measured positively in the GDP • Just like accounting for firms has drawbacks (eg. historic costs), accouting for countries has drawbacks too. • We know that when we say that in this country we earn $10 000/persxyear and in that only $2 000, the comparison doesn’t make entirely sense

  8. GDP • GDP are usually measured and presented via consumption : we measure what was bought during the year by various groups in the country (most of what is produced is bought – in fact this is rather a definition of « what is produced » because the rest, which is quite important, is not counted in the GDP -, and it is easier to measure) • Usually we use • Households • Businesses • Governments (central and local) • The rest of the world

  9. US GDP

  10. US Population and GDP/capita • The US population in early 2004 is 292 million people • The US GDP 2003 is 10 984 billion dollars • GDP per capita : about 37 600 dollars/p • The early 2004 world population is 6 350 million people (during this 3 hour class the world population will increase by 30 000, and about 8 million more tons of carbon dioxide will be released into the atmosphere by cars and industries) • The world GDP is about US $ 35 to 40 000 billion • World gdp/cap = 5500 to 6000 dollars per pers

  11. Numbers to remember • World GDP : 35 to 40 000 billion dollars • US GDP : 10 000 billion dollars • West europe GDP : a bit more than the US • China : about 4 to 5% of the world GDP • World population : 6,4 billion people • US pop : 292 million • China pop : 1300 million • US GDP pers : 37 000 dollars/p • China GDP pers : about 1000 dollars/p • China GDP yearly growth : about 8 to 10 percent.

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