Section III overview. From international Micro economy to open-Macro economy About macro economy target : price, growth, employment, and balance of payments. The core property of open-Macro economic is how an economy can get the equilibrium of internal- and external - PowerPoint PPT Presentation
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The national income accounts and the balance of payments accounts are essential tools for studying the macroeconomics of open, interdependent economies.
National income accounting• Records all the expenditures that contribute to a
country’s income and output
Balance of payments accounting• Helps us keep track of both changes in a country’s
indebtedness to foreigners and the fortunes of its export- and import-competing industries
A country’s balance of payments is a summary statement in which all the transactions of the residents of this country with the residents of all others are recorded during a particular period of time
Every international transaction automatically enters the balance of payments twice: once as a credit (+) and once as a debit (-)_ Double –entry
The rules of entry : Any transaction which induce the increase of foreign exchange supply and debt , the decrease of claim enters credit(+) ; Any transaction which induce the increase of demand for foreign exchange and claim, the decrease of debt enters debit(-).
Three types of international transactions are recorded in the balance of payments:• CA shows the transaction of real economy, namely: Exports or
imports of goods or services, income and unilateral transfers of goods or services
• Financial account shows up the international settlements and transactions of financial assets; Any transaction of international financial assets with central bank enters the international reserve account
• Unilateral transfers of wealth between countries are recorded in the capital account, when they are involved in the transfers of financial assets; They are recorded in the CA, when they are involved in the transfers of goods or service
• A U.S. citizen buys a $95 newly issued share of stock in the United Kingdom oil giant British Petroleum (BP) by using a check drawn on his stockbroker money market account. BP deposits the $95 in its own U.S. bank account at Second Bank of Chicago.
– That is, the U.S. trades assets for assets.
– This transaction creates the following two offsetting entries in the U.S. balance of payments:
– It enters the U.S. financial account with a negative sign (-$95).
– It shows up as a $95 credit in the U.S. financial account.
• Official settlements balance (balance of payments)– The book-keeping offset to the balance of official
reserve transactions
– It is the sum of the current account balance, the capital account balance, the nonreserve portion of the financial account balance, and the statistical discrepancy.
– Example: The U.S. balance of payments in 2000 was -$35.6 billion, that is, the balance of official reserve transactions with its sign reversed.balance charter.doc
– A country with a negative balance of payments may signal that it is running down its international reserve assets or incurring debts to foreign monetary authorities.
The capital account records asset transfers and tends to be small in the United States.
Any current account deficit must be matched by an equal surplus in the other two accounts of the balance of payments, and any current account surplus by a deficit somewhere else.
International asset transactions carried out by central banks are included in the financial account.
All transactions between a country and the rest of the world are recorded in its balance of payments accounts.
The current account equals the country’s net lending to foreigners. • National saving equals domestic investment plus the
current account.
• Transactions involving goods and services appear in the current account of the balance of payments, while international sales or purchases of assets appear in the financial account.