Trade and the Balance of Payments
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Summary of a countries international transactions
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3 sections
o
Capital Account – tracks flow of financial capital
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Current Account - tracks the flow of goods and services
o
Financial Account – buying and selling a countries financial assets by a central bank
Current Account
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Deals with merchandise trade, mostly tangible products (food, clothes)
o
Exports - usually a positive and credit item
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Imports – usually a negative and debit item
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Account also deals with services, “invisible” products (insurance, tourism)
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3 broad sections within the account:
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Goods and services – merchandise trade and invisibles
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Net investment income – investment transactions within the country (in Canada it’s
usually negative, since we have a lot of FDI)
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Net transfers – dealing with foreign aid, sending gifts to others, foreign labour
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After taking into consideration all three categories the account receives a surplus or deficit
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Expenditure Switching Policies – tariffs, subsidies on domestic goods, exchange rates
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Expenditure Reducing Policies – reduces domestic incomes, taxes, government spending
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This note was uploaded on 04/18/2008 for the course ECONOMICS ECN 220 taught by Professor Jolly during the Winter '08 term at Ryerson.
- Winter '08
- Jolly
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