Unit 7

Balance of payments

Measure of money inflows and outflows between the United States and the rest of the world (ROW) 

• Inflows are referred to as credits
• Outflows are referred to as debits

The balance of payments is divided into 3 accounts

• Current account

• Capital/financial account

• Official reserves account

Double entry bookkeeping

• Every transaction in the balance pf payments is recorded is recorded twice in accordance with standard accounting practice

• Ex. U.S. manufacturer, John Deere, exports $50 million worth of farm equipment to Ireland. 

• A credit of $50 million to the current account (- $50 million worth of farm equipment or physical assets)

• A debit of $50 million to the capital/financial account (+$50 million worth of euros or financial assets)

Current account

Balance of trade or net exports

• Exports of goods/services - import of goods/services

• Exports create a credit to the balance of payments

• Imports create a debit to the balance of payments

Net foreign income 

Income earned by U.S. owned foreign assets - income paid to foreign held by U.S. assets

Ex. Interest payments on U.S. owned Brazilian bonds - interest payments on German owned U.S. Treasury bonds

Net transfers (tend to be unilateral) 

Foreign aid > a debit to the current account

Ex. Mexican migrant workers send money to family in Mexico

Capital/financial accounts

The balance of capital ownership

• Includes the purchase of both real and financial assets
• Direct investment in the United States is a credit to the capital account

• Ex. The Toyota factory in San Antonio

• Direct Investment by U.S. firms/individuals in a foreign country are debits to the capital account

• Ex. The Intel factory in San Jose, Costa Rica

• Purchases of foreign financial assets represents a debit to the capital account

• Ex. Warren Buffet buys stock in Petrochina

• Purchases of domestic financial assets by foreigners represents a credit to the capital account
• The United Arab Emirates sovereign wealth fund purchases a stake in the NASDAQ

Relationship between Current and Capital account

Remember double entry bookkeeping?

• The current account and the capital account should zero each other out
• That is...if the current account has a negative balance (deficit), then the capital account should have a positive balance (surplus). 

Official reserves

• The foreign currency holdings of the United States Federal Reserve System
• When there is a balance pf payments surplus the Fed accumulates foreign currency and debits the balance of payments

Active vs passive official reserves

• The united states is passive in its use of official reserves. It does not seek to manipulate the dollar exchange rate.

• The people's republic of china is active in its use of official reserves. It actively buys and sells dollars in order to maintain a steady exchange rate with the united states. 

• Foreign exchange (FOREX)

• The buying and selling of currency

• Ex. In order to purchase souvenirs in France, it is first necessary for Americans to sell (supply) their dollars and buy (demand) Euros.

• The exchange rate (e) is determined in the foreign currency markets.

• Simply put. The exchange rate is the price of currency. 

• Do not try to calculate the exact exchange rate. 

Tips

• Always change the demand line on the currency graph, the supply line on the other currency's graph.

• Move the lines of the two currency graphs in the same direction (right or left) and you will have the correct answer. 

• If D on one graph increases, S on the other graph decrease

• If D moves to the left, S will move to the left on the other graph. 

Changes in Exchange Rates

• Exchange rates (e) are a function of the supply and demand for currency. 

• An increase in the supply of a currency will make it cheaper to buy one unit of that currency. 

• A decrease in supply of a currency will make it more expensive to buy one unit of that currency

• An increase in demand for a currency will make it more expensive to buy one unit of that currency

• A decrease in demand will make it cheaper to buy one unit of that currency. 

• Appreciation of a currency occurs when the exchange rate pf that currency increases (e ^)

• Hypothetical: 100 yen is used to buy $1. Now 200 yen buys $1

• The dollar is "stronger"

• Depreciation of a currency occurs when the exchange rate of that currency decreases (e decreases)

• One hundred yen used to buy one dollar. Now 50 yen buys one dollar

• The dollar is weaker because it takes fewer yen to buy the dollar.

Exchange rate determinants

Consumer tastes

• Ex. A preference for Japanese goods creates an increase in the demand of yen and an increase in the supply of dollars in the currency exchange market.

• The increase in demand of the yen leads to the appreciation of the yen.

• The increase in the supply of dollars leads to the depreciation of the dollar. 

Relative income

• Imports tend to be normal good

• Ex. If Mexico's economy is becoming stronger and the U.S. Economy is in recession, then Mexicans will buy more American goods.

Relative price level

• Ex. If the price level is higher in Canada than in the United States, then American goods are relatively cheaper than Canadian goods. 

• This Canadians will import more american goods causing the us dollar to appreciate. 

Speculation

• Ex. If Us investors expect that Swiss interest rates will climb in the future, then Americans will demand Swiss francs in order to earn the higher rates of return in Switzerland. 

• This will cause the Swiss franc to appreciate as demand for it will increase. 

• Supply of the dollar will increase causing it to depreciate. 

Dreams

Manifest Content: the remembered storyline of a dream.
Latent Content: the underlying meaning of a dream
Why do we dream?
Freud's wish-fulfillment Theory
*dreams are the key to understanding our inner conflicts.
* idea and thoughts that are hidden in out unconscious
* manifest and lantent content
Information-processing Theory
*Dreams act to sort out and understand the memories that you experience that day.
* REM sleep does increase after stress event.
Physiological function theories
that studies the soul, the mind, and the relationship of life and mind to the functions of the body
Activation-synthesis Theory
* during the night our brainstem releases random neural activity, dreams may be a way to make sense of that activity

Sleep disorders

Insomnia
* persistent problems falling asleep
* affects 10% of the population

Narcolepsy
* suffer from sleeplessness and may fall asleep at unpredicatble or inapporpriate times.
* directly into REM sleep
* less than .001% of the population

 

Sleep Apnea
* a person stops breathing during their sleep.
* wake up momentarily, gasps for air then falls back asleep.
* very common, especially in heavy males

Night Terrors
*sleep disorder characterized by high arousal and an appearance of being terrified.
* Occur in stage 4 not REM, and are not often remembered

Sleepwalking (somnambulism)
* sleepwalking is a sleep disorder afftecting an estimated 10 % of all humans at least once in their lives.
* sleep walking most often occur during deep non-REM sleep (stage 3 or stage 4 sleep) early in the night.

State of Consciousness

SleepHypnosis
Drugs

Sleep
*Sleep is a state of consciousness
* we are less aware of our surrounding
Consious, Subconscious, Unconscious
Why do we daydream
* they can help us prepare for future events.
* they can nourish our social development
* can substitute for impulsive behavior
Fantasy Prone Personalities
* someone who imagines and recalls experiences with lifelike vividness and who spends considerable time fantasizing.
Biological Rhythms
Annual cycles: seasonal variations (bears hibernation, seasonal affective disorder)
28 day cycles: menstrual cycle.
24 hour cycle: our circadian rhythm.
90 minute cycle: sleep cycles.
Circadian Rhythm
*our 24 hour biological clock.
* our body temperature and awareness changes throughout the day.
* it is best to take a test or study during your circadian peaks.

Sleep Stage
* There are 5 identified stages of sleep.
* takes about 90-100 to pass through all 5 waves
* the brain's waves will change according to the sleep stage you are in
* the first five stages are known as NREM sleep.
* the fifth stage is called REM sleep.
Stage 1
*kind of awake and kind of asleep.
* only lasts a few minuets and you usually only experience it once a night
* eyes begin to roll slightly
* your brain produces theta waves ((high amplitude, low frequency (slow))
Stage 2
* this follows stage 1 sleep and is the "baseline of sleep".
* this stage is part of the 90 minuet cycle and occupies approximately 45-60% of sleep.
* more theta waves that get progressively slower
Stage 3
* slow wave sleep
* you produce Delta waves
* if awoken you will be groggy
* vital for restoring body's growth hormones and good overall health.
Stage three & four
*may last 15-30 minuets
* it is called "slow wave" sleep because brain activity slows down dramatically from the "theta" rhythm for Stage 2 to a much slower rhythm called "delta" and the height or amplitude of the waves increases dramatically
Stage Three and four
* contrary to popular belief, it is delta sleep that is the "deepest" stage of sleep (not REM) and the most restorative
* it is delta sleep that a sleep-deprived persons brain craves the first and foremost.
* in children, delta sleep can occupy up to 40% of all sleep time and this is what makes children unworkable or "dead asleep" during most of the night.
REM Sleep
* rapid eye movement
* often called paradoxical sleep
* brain is very active.
* dreams usually occur in REM sleep.
* body is essentially paralyzed.
Stage T: REM SLEEP
* composes 20-25% of normal nights sleep.
* breathing, heart rate and brain wave activity quicken.
* vivid dreams can occur.
* from REM, you go back to stage 2

Ratio Schedules

Operant conditoning
* takeing away things
* response
Classical conditioning
* stimulus occured before the behavior
Reinforcement , used to increase a desired behavior
Punishment, used to decrease a unwanted behavior
Fixed Ratio
* provides a reinforcement after a set number of responses
Variable ratio
*
Interval Schedules
Fixed interval
* requires a set amount of time to elapse before giving the reinforcment
Variable interval
*requires a random amount of time to elapse before giving the reinforcement
*very hard to get acquisition but also very resistant to extinction.
Observational Learning
*Albert Bandura
BoBo doll
* we learn through modeling behaviot from others.
*Obeservational learning + Operant conditioning= social learning Theory
Laten learning
* Edward Toleman
* Three rat experiment
* Latent means hidden.
*sometimes learning is not immeditate
Insight Learning
* wolfgang Kohler and his chimpanzees.
* some animals learn though the "ah ha" experience.

Operant Conditioning

The learner is NOT passive. Learning based consequence!!
Operant Conditioning
*a type of learning in which behavior is strengthened if followed by reinforcement or diminished if followed by punishment
Classical v. Operant
* They both use acquisitioning, discrimination, SR, generalization and extinenction
* classical conditioning is automatic
*Respondent Behavior)
* dogs automatically salivate over meat, then bell no thinking involved
* operant conditioning involves behavior where one can influence their environment with behaviors which have consequences
Operant behavior
The Law effect
* Edward Thorndike
Rewarded behavior is likely to recur.
B.F Skinner
shaping
* a procedure in operant conditioning in which reinforcers guid behavior closer and cloer towards a goal.
Operant Conditioning Chamber
Reinforcer
* any event that strengthens the behavior it follows
* two types of reinforcement
Positive and negative
Positive Reinforcment
* strengthens a response by presenting a stimulus after a response.
Negative Reinforcement
*strengthens a response by reducing or removing an averive stimulus
Primary Reinforcer
* an innately reinforcing stimulus
Conditioning (secondary) Reinforcer
* a stimulus that gains it reinforcing power through its association with primary reinforcer.
Punishment
* an event that decreases the behaviot that it follows
Continuous Reinforcement
* reinforcing the desired response every time it occurs
Partial Reinforcement
* Reinforcing a response only part of the time
* the acquisition process is slower.
* greater resisitance ro extinction.
Fixed-ratio Schedules
* A schedules that reinforces a response only after a specified number of responses
Variable-ratio Schedule
*a schedule of reinforcement that reinforces a response after an unpredictable number of responses
Fixed-interval Schedual
* a schedual of reinforcment that reinforcment that reinforces a response only after a specified time has elapsed
variable-interval schedule
*a schedule of reinforcement that reinforces a response at unpredictable time interval

Learning

Most learning associative learning
* learning that certain events occur together

Three main types of learning

*classical Conditioning
* it started with Ivan Pavlov

Unconditioned Stimulus (UCS): a stimulus that naturally and automatically triggers a response

Unconditional Response (UCR): the unlearned naturally occuring response to the UCS

Conditioned Stimulus (CS): An originally irrelevant stimulus that, after association with the UCS, comes to trigger response.

Conditioned Response (CR): the learned response to previously neutral stimulus.

Aquisition
* the Initial stage of learning
* the phrase where the neutral stimulus is associated with the UCS so that the neutral stimulus comes to elicit the CR ( thus becoming the CS )

Extinction
*The diminishing of a conditional response

Spontaneous Recovery
* The reapperearance. After a rest period of an extinuished conditioned response.

Generalization
*The tendency, once a response has been conditioned for stimuli similar to the CS to elicit similar responses.

Discrimination
*the learned ability to dishinguish between CS and other stimuli that does not signal UCS.