Chapter_13_Balance_of_Payments

Fa 0country decumulates assets accounting for asset

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FA > 0Country decumulates assets.
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Accounting for Asset Transactions Capital Account (KA) Capital account is relatively small, accounting for mostly capital transfers (debt forgiveness, gifts). plus some minor items: acquisition/disposal of non- financial, non-produced assets (patents, copyrights, franchises). The capital account is KA = KAIN – KAOUT KA < 0 Country gave more transfers than it received. KA > 0 Country received more transfers than it gave.
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How the Balance of Payments Accounts Work Macroeconomic View Total resources available to the economy is the sum of resources available from income earned plus those available from the exchange of assets. This leads to the BOP identity Resources available to home country due to income Resources available to home country due to asset trades GNE + CA + FA + KA = GNE . Current Account Capital Account CA + KA + FA = 0. Financial Account
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Understanding Data on Balance of Payments Because CA + KA + FA = 0, a country’s current account indicates whether it is a net lender or net borrower . CA > 0, KA + FA < 0, net lender Country income exceeds expenditure Country is a net buyer/importer of assets or net lender CA < 0, KA + FA > 0, net borrower Country expenditure exceeds income Country is a net seller/exporter of assets or net borrower U.S. in 2006 was a net borrower. CA = –$811 billion. KA + FA =+$800 billion. Difference: statistical error.
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Understanding Data on Balance of Payments U.S. trends for BOP items. Since 1990, U.S. current account deficit has grown. CA deficit financed through borrowing from abroad (FA surplus).
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How the Balance of Payments Accounts Work Microeconomic View Each transaction in the balance of payments must involve a BOP credit and a BOP debit. Why? Every market transaction involves two parts: If party A engages in a transaction with party B, then A receives from B an item of given value. In return, B receives from A an item of equal value.
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How the Balance of Payments Accounts Work Microeconomic View BOP credit items Current account (CA) Exports of goods and services (+EX) Exports of factor services (+EXFS) Unilateral transfers received (+UTIN) Financial account (FA) Exports of home and foreign assets (+EXHA, + EXFA) Capital account (KA) Capital transfers received (+KAIN)
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How the Balance of Payments Accounts Work Microeconomic View BOP debit items Current account (CA) Imports of goods and services (–IM) Imports of factor services (–IMFS) Unilateral transfers given (–UTOUT) Financial account (FA) Imports of home and foreign assets (–IMHA, –IMFA) Capital account (KA) Capital transfers given (–KAOUT)
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How the Balance of Payments Accounts Work Example #1 George spends $110 (€100) on French wine. George pays with an American Express card.
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