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econ122lec1slides (2) - Econ 122 Lecture 1: Balance of...

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Econ 122 Lecture 1: Balance of Payments Joel M. David UCLA September 8, 2010 Joel M. David (UCLA) Econ 122 Lecture 1: Balance of Payments September 8, 2010 1 / 22
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Balance of Payments How do we track international transactions? balance-of-payments (BOP) accounts. Three components of BOP: current account. ±nancial account. capital account. Joel M. David (UCLA) Econ 122 Lecture 1: Balance of Payments September 8, 2010 2 / 22
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Current Account (CA) Records exports and imports of goods and services and international receipts or payments of income. Exports and income receipts enter with a plus sign, imports and income payments with a minus. Example: if US resident buys Sony MP3 player from Japan for $50, the US CA goes down by $50. Joel M. David (UCLA) Econ 122 Lecture 1: Balance of Payments September 8, 2010 3 / 22
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Financial Account (FA) Records sales of assets to foreigners and purchases of assets located abroad (e.g., currency, stock, bonds, etc.). Sales of assets to foreigners enter with a plus sign, purchases of assets located abroad with a minus. Example: If Japanese MP3 player was bought with US currency, then Japanese resident (Sony) is buying US asset (currency) for $50, so US FA increases by $50. Joel M. David (UCLA) Econ 122 Lecture 1: Balance of Payments September 8, 2010 4 / 22
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Capital Account (KA) Records capital transfers. Major types: debt forgiveness and migrant transfers. Small piece of BOP for developed countries. Joel M. David (UCLA) Econ 122 Lecture 1: Balance of Payments September 8, 2010 5 / 22
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Double Entry Bookkeeping Each transaction enters BOP twice, once with a posive sign, and once with a negative sign. Sum of BOP must equal zero. Example: a British friend of yours comes to visit and stays at the W Hotel in Westwood. He uses his British Visa to pay $400 for his hotel room. US exports service (hotel room) so US CA increases by $400. $400) so FA decreases by $400. What happens to British BOP? Joel M. David (UCLA) Econ 122 Lecture 1: Balance of Payments September 8, 2010 6 / 22
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Detailed Decomposition of BOP 1 Current Account: measures net exports (di/erence between exports and imports) of goods and services and net international income receipts. 1 Trade Balance: di/erence between exports and imports of goods and services. 1 Merchandise Trade Balance: exports minus imports of goods. 2 Services Balance: exports minus imports of services (e.g., transportation, travel, legal assistance, etc.) 2 Income Balance 1 Net investment income: di/erence between income receipts on US-owned assets abroad and payments on foreign-owned assets in the US. Includes interest and 2
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econ122lec1slides (2) - Econ 122 Lecture 1: Balance of...

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