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Based on Double Entry Book-Keeping
Credit is equal to
Debit Income = Expenditure.
Combining the equation No. (1) &
equation No. (2)
Cp + Cg + Ip + Ig + X =
Cp + Sp + T + IM
Some manipulation leads us to fundamental
accounting identity in BOP accounting:
(Ip - Sp) + Ig - (T – Cg) = IM – X - (3) Expression IM – X =
Current Account Deficit ( CAD )
Equation 3 indicates that CAD is
equal to the excess of investment
over saving (IP – SP) and the fiscal
deficit Ig – (T – Cg)
deficit If TC renamed as Sg (Government
(Ip - Sp) + (Ig – Sg) = IM – X
Such decomposition of CAD yields
insights into the causes of trade
deficit or current account deficit.
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- Spring '13