Chapter_13_Balance_of_Payments

From this expression gndi gne if and only if ca 0

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From this expression: GNDI > GNE if and only if CA > 0 This situation is one of current account surplus GNDI < GNE if and only if CA < 0 This situation is one of current account deficit
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What the Current Account Tells Us National income identity: GNDI = C + I + G + CA Subtracting C and G from both sides, we obtain an expression for national saving (S = GNDI – C – G): S = I + CA => CA = S – I This is the current account identity S > I if and only if CA > 0 (Current account surplus) S < I if and only if CA < 0 (Current account deficit)
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What the Current Account Tells Us The current account measures the difference between spending and income. The current account allows us to see whether the country is “living beyond its means” in any period. How is that possible? If income exceeds spending, the nation is saving more than is needed to finance investment spending. It can lend. If spending exceeds income, the nation is saving less than is needed to finance investment spending. It must borrow. To understand lending and borrowing we need to look at transactions in assets to complete our study of the Balance of Payments.
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Global Imbalances The current account over time.
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Global Imbalances Savings and investment have declined in industrial countries. U.S. investment demand increased dramatically as the result of a long economic expansion. Savings have declined partially because of rise in the share of the population that is retired. Also wealth accumulation during the housing boom. Recent experience U.S. persistent current account deficits since 1990, from declining saving and rising investment. Japan has experienced persistent current account surpluses since 1980.
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Global Imbalances Emerging markets began running current account surpluses in the late 1990s. Industrialized countries have run current account deficits since the 1990s.
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Balance of Payments Accounts: Overview Balance of payments accounts Record international transactions involving goods and services (current account) and financial assets (financial account and capital account). Three accounts Current account (goods and services) Financial account (assets) Capital account (assets) We are now familiar with the first. What about the others?
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Accounting for Asset Transactions Financial Account (FA) Records all transactions in assets. EXA: Export of assets = total value of financial assets received by ROW, from the home country. IMA: Import of assets = total value of financial assets received from ROW, by the home country. Financial Account records all “movements” of assets — i.e., changes of national ownership. FA = EXA – IMA FA < 0Country accumulates assets.
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