Lec01 animated 1 latest post.pptx - Lecture 1 Balance of payments BOP and National income product accounting NIPA for an open economy Balance of

Lec01 animated 1 latest post.pptx - Lecture 1 Balance of...

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Lecture 1 Balance of payments BOP and National income product accounting NIPA for an open economy
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Balance of payments (BOP) Domestic & foreign residents can exchange (1) goods, (2) services, and (3) financial assets with each other BOP is an accounting system that keeps track of these exchanges in a given year Two major accounts in BOP: C urrent A ccount (for goods and services G&S) F inancial A ccount (for financial assets)
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Balance of payments (BOP) Exports to foreign countries are recorded with a credit entry ( + ) Imports from foreign countries are recorded with a debit entry ( - )
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Current account CA = + Exports of all G&S Imports of all G&S 1 . Trade balance account (TB) for trade in G&S, excluding “factor services” 2. Net factor income from abroad account (NFIA) for trade in “factor services” aka investment income or income account 3. Net unilateral transfers (NUT) for one-way flow of G&S w/o any economic value in return aka Net “current” transfer
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Current account (ignore NUT) Trade balance (TB) Net factor income from abroad account (NFIA) Current account Merchandise trade account Service or “invisible” trade account Export of G&S ( + ) (+) (+) (+) EX G&S (+) Import of G&S (-) (-) (-) (-) IM G&S (-)
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NFIA records export/import of “factor service” provided by owners of factors of production Wages, interests , dividends , and profits Interests , dividends , and profits are derived from the stock of financial claims (or liabilities) residents of one country have on (owe to) residents of another country Foreign/external assets A : Domestic residents’ holdings of assets that are issued by foreign residents Foreign/external liabilities L : Domestic residents’ liabilities to foreign residents [ foreign residents’ holdings of assets that are issued by domestic residents ] Income account (NFIA)
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Income account (NFIA) Export of factor services (EX FS ) Inflows of payment from provision of labor service to foreign residents ownership of foreign assets on foreigner residents Import of factor services (IM FS ) Outflows of payment for labor service provided by foreign residents servicing the foreign liabilities owed to foreigner residents NFIA = +EX FS – IM FS
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Income account (NFIA) Income flows of interests, dividends, and profits are classified into 3 sub-accounts according to the nature of foreign assets/liabilities the flows are derived from: 1. Direct investment income – derived from the stock of direct investment assets 2. Portfolio investment income - derived from the stock of portfolio investment assets 3. Other investments income - derived from the stock of other investment assets
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Net unilateral transfers (NUT) Examples: foreign aids, remittances by migrants to their families back home One-way transfer from foreign residents +UT IN One-way transfer to foreign residents - UT OUT NUT = +UT IN - UT OUT
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Financial account FA FA records international exchanges of financial assets FA = + EX A IM A
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