Note202_06 - Macroeconomics Theory and Policy Balance of...

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Macroeconomics Theory and Policy Masoud Anjomshoa 1 1 Balance of Payments Accounting: Balance of Payments Accounts are parts of System of National Accounts (SNA), which record a country’s international transactions. Current Account (CA): Keeps track of flow of Capital and Financial Accounts (KA): Any transaction that involves a flow of funds into the country is a credit item, and is entered to the account with a plus sign. Any transaction that involves a flow of funds out of the country is a debit item, and is entered to the account with a negative sign. Balance of Payments = If a country runs trade deficit (current account deficit), it should run capital account surplus, i.e. selling its assets to foreigners. Masoud Anjomshoa 2 Balance of Payments Accounts: Canada’s Balance of Payments, 2003 (Billions of Dollars) Debit Credit Balance . 1)- Export of merchandise 400.0 2)- Import of merchandise -341.8 3)- Merchandise trade balance (1+2) 58.2 4)- Export of services 59.9 5)- Import of services -70.9 6)- Services trade balance (4+5) -11.0 7)- Net export (3+6) 47.2 8)- Income receipts on investment 32.7 9)- Income payments on investment -56.4 10)- Net income from assets (8+9) -23.7 13)- Current account (CA) (7+10+11+12) 23.8 11)- Net receipts of wages and salaries 0.1 12)- Net current transfers 0.2
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Macroeconomics Theory and Policy Masoud Anjomshoa 2 3 Balance of Payments Accounts: Canada’s Balance of Payments, 2003 (Billions of Dollars) Debit Credit Balance . 14)- Canadian direct investment abroad -35.0 15)- Canadian portfolio investment abroad -37.8 16)- Purchases of foreign assets by Canadians (14+15) -72.8 26)- Official settlement balance (Balance of Payments) (-20) -4.7 23)- Capital and financial accounts (KA) (21+22) -20.7 20)- Canadian Official reserves assets 4.7 21)- Financial account (16+19+20) -24.7 17)- Foreign direct investment in Canada 28.0 18)- Foreign portfolio investment in Canada 15.4 19)- Sales of Canadian assets to foreigners (17+18) 43.4 22)- Capital account 4.0 24)- Statistical discrepancy (-23-13) -3.1 25)- Balance of Payments (24+23+13) 0 CA = 23.8 Masoud Anjomshoa 4 Medium Run: . - In Medium Run, the price level, P, is endogenous , i.e. price can vary . - Capital, K , and labor, L , are still assumed fixed . Labor Market: In order to endogenize P, the labor market should be modeled. Factor Market Firms Revenue Firms Households Government Foreigners Consumption Income Factor Payments Private Saving Goods Market Financial Market Capital Flow Export-Import Taxes Investors Government Spending Budget Deficit Investment Borrowing Inventories During the boom : High pressure on resources like labor Î Î Î During the recession : Idle resources like labor Î Î Î
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Macroeconomics Theory and Policy Masoud Anjomshoa 3 5 Unemployment Rate (%) 0 3 6 9 12 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Labor Market, and Unemployment: 3 4 5 6 7 8 9 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Italy Germany France U.K. U.S. Unemployment Rate (%) Unemployment rate fluctuates considerably over time, and from country to country.
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Note202_06 - Macroeconomics Theory and Policy Balance of...

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