1. Balance of Payments a. Know what makes up the current account and capital account Current account: Exports- imports + net investment income (earned income on investments in this country - interest payments to foreigners on domestic investments) - debt service payments (interest in dividends on debt issued, i.e. interest you have to pay on the debt) + net remittances (people abroad sending income home) and transfers if it equals a positive number, then that "country has a current account surplus" if it equals a negative number, then that "country has a current account deficit" Capital account: Direct private investment (in the form of foreign direct investment - FDI) - when a multinational invest in your country and build stuff in your country, e.g. a US firm buying a building in a foreign country (multinationals building domestically) + foreign loans (foreign aid, loans from banks from private or public sources, e.g. Citibank or the World Bank) - increase in foreign assets of domestic banking system
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