Chapter 9 Flashcards
What is the current account?
Tacks flow of g/s between a country and the world
What is the capital account?
Records transfers of specialized capital assets between countries
Smallest account
What is the financial account?
Record of all financial transactions between a country and the world
What comes under the current account?
Trade balance - exports and imports of g/s
Primary income - income paid and received from abroad
Secondary income - transfers made and received from abroad
How do you calculate the current account balance?
G/s exports + primary income (credit) + transfers (credit) - g/s imports - primary income (debit) - transfers (debit)
What is credited in the primary income?
Investment earnings income received from foreigners and compensation of employees
What is debited in primary income?
Investment earning income paid to foreigners and compensation of employees
What is credited in secondary income?
Transfers received from abroad
What is debited in secondary income?
Transfers made to foreigners
What happens to the current account balance when imports rise?
Current account deficits increase and consumer surplus increases
How can we calculate GNP?
C+S+T
C+I+G+X-M
Equal it to each other
S+(T-G)=I+CA
What are components in the financial account?
Net acquisition of financial assets
Net incurrence of financial liabilities
Changes in financial derivatives
What are net acquisition of financial assets?
Purchases of foreign financial assets - real estate, businesses, etc
A form of lending to foreigners - used to settle international payments
+ is residents are buying more foreign assets than selling
What are net incurrence of liabilities?
Foreign purchase of home country assets
Real estate, businesses, etc
A form of borrowing from abroad
What is financial derivatives?
Assets with a value derived from the value of another assets - commodity prices or exchange rates
What does a current account deficit mean?
Country consumes more than it produces
What does a current account surplus mean?
Country has savings it can invest abroad
Surplus implies that the country can produce more than it consumes
What is FDI?
Investment in real assets
What is portfolio investment?
Investment in stocks and bonds and other paper assets
What are reserve assets?
Monetary gold and foreign currency that can be used to settle international payments
What is NIPA?
National income and produce account - used to track domestic income and production
What is GDP?
The market value of all final g/s produced within a country within a year
What is GNP?
Market value of all final g/s produced by the country’s fops within a year
GDP + CA
What is international debt?
Net capital inflows are an increase in liabilities to foreign nations
External debt creates debt service obligations requiring interest payments and repayment of principal
