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UNIT 7-Balance of Payments

-Measures of money inflows and outflows between the U.S and the rest of the world
         Inflows are known as credits
         Outflows are known as debits
-Divided into 3 accounts
          Current Account
          Financial (capital) Account
         Official Reserves

Current Account
-balance of trade or Xn (Exports-Imports)
       Export (credit/asset)
       Import (debit/liability)
-Net Foreign Income (Net Investment)
       income earned by U.S owned-foreign assets
       income paid to foreign-held U.S assets
-Net Transfers (Foreign Aid)
       Humanitarian efforts

Capital/Financial Account
-balance of capital ownership
            includes purchase of real financial assets
            direct investment in the U.S is a credit to the capital acct. (Ex: Toyota factory in San Antonio)
            direct investment by U.S firms/individuals in a foreign country are debits to the capital acct.
            (Ex: Dell Computer Factory in Costa Rica)
             purchase of foreign financial assets represents a debit to the financial acct.
             (Bill Gates buys stocks in Petro China)
            purchase of domestic financial assets by foreigners represent a credit to the capital acct
            (Venezuela purchases a large stake in Walmart)
            current and capital accts. should zero each other out

Official Reserves
-foreign currency holdings of the U.S balance of payment
-should zero out the balance of payments

Formulas
Balance of Trade: goods exports + goods imports
Balance on goods and services: (goods exports + service exports) - ((good imports + service imports)
Current Acct.: Net exports + Net Investment + Net Transfers
Capital Acct.: Foreign purchase of assets + U.S purchases of assets




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