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Lecture 12&13 -Trade and the Balance of Payments

Lecture 12&13 -Trade and the Balance of Payments -...

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Trade & the Balance of Payments Trade and the Balance of Payments - Summary of a countries international transactions - 3 sections o Capital Account – tracks flow of financial capital o 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 - Deals with merchandise trade, mostly tangible products (food, clothes) o Exports - usually a positive and credit item o Imports – usually a negative and debit item - Account also deals with services, “invisible” products (insurance, tourism) - 3 broad sections within the account: o Goods and services – merchandise trade and invisibles o Net investment income – investment transactions within the country (in Canada it’s usually negative, since we have a lot of FDI) o Net transfers – dealing with foreign aid, sending gifts to others, foreign labour - After taking into consideration all three categories the account receives a surplus or deficit - Expenditure Switching Policies – tariffs, subsidies on domestic goods, exchange rates -
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