The balance of payments is very simple a concept: the sum of current account and capital account. It is zero. How can we distinguish one from the other? A unilateral transfer of financial assets falls into current account while a bilateral transfer of financial assets falls into capital account. Consider these:
A Canadian buys a car from Japan. This is obviously debit in current account because money, a type of financial asset, moves in one direction from Canada to Japan. It is half the story. Since this Canadian must sell his or her assets for Japanese yen to pay for the car. Since he (she) sells his (her) assets, it should recorded credit in capital account. In this transaction, assets move in both directons unlike buying a Japanese car. The Canadian consumer's existing asset goes out and new assets, i.e., the equivalent amount of Japanese yens come in. The sum of CA and KA should be zero unless there is a statistical discrepancy.
Friday, April 26, 2013
Sunday, April 14, 2013
Does MRU POST program have to maintain its internship requirement?
Definitely not. It does not help anybody. If it helps somebody, it will be the university, which barely does anything and collects the full amount of tuition for 15 credits (five courses equivalent) from its students. This requirement needs to be replaced by something more reasonable. I'm of course suggesting 5 alternative academic courses. If the department wants to make students' life more difficult as a penalty, then just it can impose another requirement that those who take 5 alternative courses must have two minors in both economics and political science, etc. It incurs no extra cost to the university because those students simply pay the same amount of tuition as the students taking internship.
Of course, there are some concerns that students may not take internship any more if internship is optional. It's possible but unlikely. Consider this game:
1. There are two players: the department and students
2. It is a sequential-moves game and a move is initiated by the department.
3. The department has two strategies: "only internship" and "offer 5 more courses instead". Note students can still choose internship under "offer 5 more courses instead" system. That is, internship becomes optional.
4. Students have two strategies: "Try internship" and "Do not try internship".
5. The very problem of internship is uncertainty. A student may not find an employer who is willing to hire him or her. It completely depends on labour market situation, not the department's policy. I assume 50% chance. It could be higher; it could be lower.
6. The pay-offs are calculated in loss of time. The department never loses in this game. There is no time constraint for the department. On the other hand, a student may lose if he or she delays graduation for some reason.
7. Unrealistically, a student will graduate at least till August next year, anyway. I.e. a graduating student may not choose internship or cannot find a job this spring, but he will choose internship or can find an employer spring next year.
Now observe this game tree.
First, let's assume that the department sticks with the current policy: internship is mandatory. Then, a student in the third year may choose to try to get an internship or not. If a student try to take the internship course and get a job, the pay-off is zero. There is no time-loss. However, life is unpredictable. The student may not find a job, then he or she must wait for eight more months to graduate. (Note that a student will complete degree requirement at the end of fall semester in the fourth year if he or she fulfills all course and internship requirements. Or, he or she will likely pass the winter and find a job the next spring.) If this uncertainty means that 50% chance to be employed, then this student's pay-off will be -4 because:
0 month loss*0.5+(-8 month loss)*0.5=-4 months
If a student simply does not take internship, he or she must wait 8 months. There is no uncertainty in this case. Therefore, this student will lose 8 months.
Assuming the department would offer 5 more courses instead if a student do not choose internship or cannot find a job, then it will remarkably improve students' welfare.
If a student tries an internship, his or her pay-offs that takes into consideration uncertainty will be only -2. It is because the student can take 5 alternative courses in that case. Therefore, his or her loss will decrease. Consider the following calculation:
0 month loss*0.5+(-4 month loss)*0.5=-2 months
In this case, a student who cannot find a job in the previous spring will take winter semester to graduate. It will reduce his or her uncertainty. Thus this student will be better off. Even if a student does not take internship at all, this student will complete his or her degree in winter semester anyway, his loss is only four months.
Will it give students more incentive not to take internship? Probably not. Under any of those two regimes, students have greater incentive to take internship. Giving students an alternative degree path just make their life easier. There is no reason the MRU POST department does not consider this option unless it just wants to be shown easy to its students.
Update: it may be a little too strong to say "replace." I mean internship should be offered with five academic alternative courses.
Of course, there are some concerns that students may not take internship any more if internship is optional. It's possible but unlikely. Consider this game:
1. There are two players: the department and students
2. It is a sequential-moves game and a move is initiated by the department.
3. The department has two strategies: "only internship" and "offer 5 more courses instead". Note students can still choose internship under "offer 5 more courses instead" system. That is, internship becomes optional.
4. Students have two strategies: "Try internship" and "Do not try internship".
5. The very problem of internship is uncertainty. A student may not find an employer who is willing to hire him or her. It completely depends on labour market situation, not the department's policy. I assume 50% chance. It could be higher; it could be lower.
6. The pay-offs are calculated in loss of time. The department never loses in this game. There is no time constraint for the department. On the other hand, a student may lose if he or she delays graduation for some reason.
7. Unrealistically, a student will graduate at least till August next year, anyway. I.e. a graduating student may not choose internship or cannot find a job this spring, but he will choose internship or can find an employer spring next year.
Now observe this game tree.
First, let's assume that the department sticks with the current policy: internship is mandatory. Then, a student in the third year may choose to try to get an internship or not. If a student try to take the internship course and get a job, the pay-off is zero. There is no time-loss. However, life is unpredictable. The student may not find a job, then he or she must wait for eight more months to graduate. (Note that a student will complete degree requirement at the end of fall semester in the fourth year if he or she fulfills all course and internship requirements. Or, he or she will likely pass the winter and find a job the next spring.) If this uncertainty means that 50% chance to be employed, then this student's pay-off will be -4 because:
0 month loss*0.5+(-8 month loss)*0.5=-4 months
If a student simply does not take internship, he or she must wait 8 months. There is no uncertainty in this case. Therefore, this student will lose 8 months.
Assuming the department would offer 5 more courses instead if a student do not choose internship or cannot find a job, then it will remarkably improve students' welfare.
If a student tries an internship, his or her pay-offs that takes into consideration uncertainty will be only -2. It is because the student can take 5 alternative courses in that case. Therefore, his or her loss will decrease. Consider the following calculation:
0 month loss*0.5+(-4 month loss)*0.5=-2 months
In this case, a student who cannot find a job in the previous spring will take winter semester to graduate. It will reduce his or her uncertainty. Thus this student will be better off. Even if a student does not take internship at all, this student will complete his or her degree in winter semester anyway, his loss is only four months.
Will it give students more incentive not to take internship? Probably not. Under any of those two regimes, students have greater incentive to take internship. Giving students an alternative degree path just make their life easier. There is no reason the MRU POST department does not consider this option unless it just wants to be shown easy to its students.
Update: it may be a little too strong to say "replace." I mean internship should be offered with five academic alternative courses.
Thursday, April 11, 2013
Interest is not the price of money
I hate MD-MS model. It gives students bad perception of money and interest. After first year macro, many students believe interest is price of money. It is not. Interest is price of credit. Textbooks usually say it is opportunity cost of holding money. It is a right definition but not easy to grasp.
Why is interest not price of money? When I buy an apple, I pay its price. Then, the apple becomes mine. However, when I borrow money from somebody else, that money does not become mine. I will have to pay back. It is the same as rent for a house. When I rent a place, that place does not become mine. I will have to give it back to the landlord at the end of lease. Rent is the price for right to use the place, not the price for ownership.
Then, what is the price of money? It is actually 1/P. Several macro textbooks do not have this part but Mankiw's textbook explains this in detail. Money is not traded for the same amount of money. Price of money cannot be measured monetary term. Money is traded for goods and other assets. Therefore, 1/P represents what quantity of goods I must pay to buy one unit of money. Falling price of money means I pay less amount of goods for one unit of money. Thus, price and money reciprocal.
Why is interest not price of money? When I buy an apple, I pay its price. Then, the apple becomes mine. However, when I borrow money from somebody else, that money does not become mine. I will have to pay back. It is the same as rent for a house. When I rent a place, that place does not become mine. I will have to give it back to the landlord at the end of lease. Rent is the price for right to use the place, not the price for ownership.
Then, what is the price of money? It is actually 1/P. Several macro textbooks do not have this part but Mankiw's textbook explains this in detail. Money is not traded for the same amount of money. Price of money cannot be measured monetary term. Money is traded for goods and other assets. Therefore, 1/P represents what quantity of goods I must pay to buy one unit of money. Falling price of money means I pay less amount of goods for one unit of money. Thus, price and money reciprocal.
Subscribe to:
Posts (Atom)