Lecture 4 Handout 2.1 Current Account

Lecture 4 Handout 2.1 Current Account - ECO 320L Handout:...

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1/2 ECO 320L Handout: The current account 9/1/2010 Professor Beatrix Paal BRB 3.114 professorpaal@gmail.com (512) 475-8531 The current account in the national income accounts For national income accounting purposes, the current account is defined as the sum of net exports and net factor payments from abroad: CA = NX + NFP In the balance of payments accounts, the current account also includes net unilateral transfers; we will ignore those here. Interpretations of the current account Like most of the other national income accounting categories, the current account can be understood two different ways: as a flow of “real” things (goods, services and factor services), or as a corresponding flow of payments. As a flow of real things, the current account represents the net outflow from a country of goods, services and factor services. Another way to think of this is that the current account represents the value added by nationals of a country that is used by foreigners in the current period. This value added can flow out of the country in the form of net exports (if the value added was produced within the borders of the country), or it can flow out in terms of the factors of production themselves flowing out on net to produce value added outside of the borders of the country. A current account surplus (CA>0) arises when o EX > IM, i.e. the country sends more domestically produced goods and services abroad than what it receives from abroad, or o NFP > 0 , or factor payments from abroad > factor payments to abroad.
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This note was uploaded on 10/25/2010 for the course ECO 320L taught by Professor Kendrick during the Fall '10 term at University of Texas at Austin.

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Lecture 4 Handout 2.1 Current Account - ECO 320L Handout:...

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