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Lesson_49_International Investment Position

Lesson_49_International Investment Position - International...

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1 Lesson 49 1 International Investment Position Current account deficits imply financial account surpluses Financial account surplus means net financial inflow What are the implications? Lesson 49 2 Start with analogy Consider a person who starts the year with $4,000 in a savings account During the year, person makes some deposits, withdraws some funds Suppose the end of year balance is $4,250 Net result is saving increased by $250 Lesson 49 3 We could figure out saving by also looking at difference between income and spending Can do the same for the entire economy At any point in time, can calculate American holding of foreign assets, and foreign holding of American assets These amounts increases/decreases over time
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2 Lesson 49 4 Financial outflows correspond to increase in American holding of foreign assets “Putting money in foreign savings account” Financial inflows correspond to increase in foreign holding of American assets “Foreigners putting money in American savings account”
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