Ch17 - 2009-11-16 Macroeconomics in an Open Economy...

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2009-11-16 1 Macroeconomics in an Open Economy Learning Objective 17.1 Open economy An economy that has interactions in trade or finance with other countries. Closed economy An economy that has no interactions in trade or finance with other countries. Balance of payments The record of The record of a country’s trade with other countries in goods, services, and assets.
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2009-11-16 2 Learning Objective 17.1 Current account The part of the balance of payments that records a The Current Account balance of payments that records a country’s net exports, net investment income, and net transfers. The current account records current, or short- term , flows of funds into and out of a country. Learning Objective 17.1 The Current Account FIGURE 17.1 Trade Flows for the United States and Japan 2006 The Balance of Payments: Linking the United States to the International Economy States and Japan, 2006
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2009-11-16 3 Learning Objective 17.1 Net Exports Equals the Sum of the Balance of Trade and the Balance of Services The Current Account CURRENT ACCOUNT Exports of goods $1,023 Imports of goods 1,861 Balance of trade 838 Exports of services 423 Imports of services 343 Balance of services 80 Table 17-1 The Balance of Payments of the United States, 2006 (billions of dollars) Income received on investments 650 Income payments on investments 614 Net income on investments 36 Net transfers 90 Balance on current account 812 The Balance of Payments: Linking the United States to the International Economy Learning Objective 17.1 Net Exports Equals the Sum of the Balance of Trade and the Balance of Services The Current Account FINANCIAL ACCOUNT Increase in foreign holdings of assets in the United States 1,860 Table 17-1 The Balance of Payments of the United States, 2006 (billions of dollars) (continued) Increase in U.S. holdings of assets in foreign countries 1,055 Balance on Financial Account 805 BALANCE ON CAPITAL ACCOUNT - 4 Statistical discrepancy 11 Balance of payments 0
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2009-11-16 4 Learning Objective 17.1 Balance of trade The difference between the value of the goods a country exports and the value of the goods a The Current Account country imports. The balance of trade is the largest item in the current account. USA in 2006: -US$ 838 b. Balance of service : US$ 80 b. (for USA in 2006) (i) Net Exports Equals the Sum of the Balance of Trade and the Balance of Services. USA in 2006: -US$758 b. Learning Objective 17.1 (ii) Net investment income : income received (by domestic residents) from investments in other domestic residents) from investments in other countries minus income paid on investments (owned by foreign citizens) in the domestic economy e.g., USA in 2006: -US$ 36 b. (iii) Net transfers : the difference between transfers made to residents of other countries and transfers received by domestic residents from other countries
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2009-11-16 5 Learning Objective 17.1 Technically, net exports is not equal to the current account balance because the current account account balance because the current account balance also includes net investment income and net transfers.
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This note was uploaded on 02/22/2010 for the course FBE ECON1002 taught by Professor Rao during the Spring '10 term at HKU.

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Ch17 - 2009-11-16 Macroeconomics in an Open Economy...

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