lecture17 - 1 17-1 Saving and Investment in the Open...

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Unformatted text preview: 1 17-1 Saving and Investment in the Open Economy, Part 1 17-2 Agenda • Balance of Payments Accounting. • Goods Market Equilibrium in an Open Economy. • Saving and Investment in a Small Open Economy. 17-3 Balance of Payments Accounts 17-4 Balance of Payments Accounting • The Balance of Payments Accounts are a summary of a country’s net international transactions. ¾ Credit items represent international receipts. ¾ Debit items represent international payments. 2 17-5 Balance of Payments Accounting • Basic Principles: ¾ Credit items (+) are funds flowing into a country. • Exports of goods and services, • Investment income on foreign assets owned by domestic residents, • Transfers to domestic residents, • Net purchases of domestic assets by foreign residents. ¾ This represents the demand for the domestic currency (in the foreign exchange market). 17-6 Balance of Payments Accounting • Basic Principles: ¾ Debit items (–) are funds flowing out of a country: • Imports of goods and services, • Investment payments on domestic assets owned by foreign residents, • Transfers to foreign residents, • Net purchases of foreign assets by domestic residents. ¾ This represents the supply for the domestic currency (in the foreign exchange market). 17-7 Balance of Payments Accounting • The Balance of Payments Accounts consists of: ¾ The current account balance, CA , ¾ The capital and financial account balance, KFA , and ¾ The official settlements account balance, OSA. 17-8 Balance of Payments Accounting • The Current Account balance, CA, consists of: ¾ Net exports of goods and services (NX) , ¾ Net income from abroad (NFP) , and ¾ Net unilateral transfers (NUT). 3 17-9 Balance of Payments Accounting • The Current Account balance, CA : ¾ Net exports of goods and services, (NX) : • Exports, X , (a credit item). MINUS • Imports, M , (a debit item). • For most countries, net exports, X – M , are the largest part of the current account and they are hugely negative for the U.S. 17-10 Balance of Payments Accounting • The Current Account balance, CA : ¾ Net income from abroad (NFP): • Investment income on foreign assets owned by domestic residents, (a credit item). MINUS • Investment payments on domestic assets owned by foreign residents, (a debit item). • For most countries, net income from abroad is a relatively small part of the current account and is about equal to net factor payments, NFP ....
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This note was uploaded on 04/20/2008 for the course ECON 100B taught by Professor Wood during the Spring '08 term at Berkeley.

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lecture17 - 1 17-1 Saving and Investment in the Open...

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