Principles of Macroeconomics – The Balance of Payments (Lecture 7.1)

Principles of Macroeconomics – The Balance of Payments (Lecture 7.1)

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Principles of Macroeconomics – The Balance of Payments (Lecture 7.1) The balance of payments accounts include: The current account which identifies whether a country has absorbed more goods and services than it produced. The capital account which identifies whether a country has lent to or invested more abroad than it has received from abroad. The balance of payments The current account balance is the sum of net exports (NX), net income (NI) and net transfers. Where (S – I) is the private sector balance and (NT – G) is the government sector balance. Capital account Records Australia’s borrowing from the rest of the world minus Australia’s lending to the rest of the world. The capital account classifies transactions into three categories: o Direct investment o Portfolio investment o Other investment Australia’s External Debt Arguments Against Accumulating External Debt o The burden of debt servicing
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o The vicious debt cycle o Increasing borrowing costs
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Principles of Macroeconomics – The Balance of Payments (Lecture 7.1)

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