Balance-of-Payments - Mr.Mayer APMacroeconomics...

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Mr. Mayer AP Macroeconomics The Balance of Payments
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Balance of Payments Measure of money inflows and outflows  between the United States and the Rest  of the World (ROW) Inflows are referred to as CREDITS Outflows are referred to as DEBITS The Balance of Payments is divided  into 3 accounts Current Account Capital/Financial Account Official Reserves Account
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Double Entry Bookkeeping Every transaction in the balance of payments  is recorded twice in accordance with  standard accounting practice. Ex. U.S. manufacturer, John Deere,  exports $50  million worth of farm equipment to Ireland. A credit of $50 million to the current account    ( - $50 million worth of farm equipment or physical  assets) A debit of $50 million  to the capital/financial account   ( + $50 million worth of Euros or financial assets)  Notice that the two transactions offset each other.  Theoretically, the balance payments should  always equal zero…Theoretically
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Double Entry Bookkeeping Lucky for you, in AP Macroeconomics we  only worry about the 1 st  half of the  transaction. We simplify and see the export  of farm equipment as a credit (inflow of $) to  the current account. Why then, did I mention double entry  bookkeeping? To illustrate my innate intelligence?
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This note was uploaded on 10/29/2010 for the course ECO 33815 taught by Professor Trejo during the Spring '10 term at University of Texas at Austin.

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Balance-of-Payments - Mr.Mayer APMacroeconomics...

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