Chapter 25 Notes

Balance of payments accounts

Current account
o Exports (positive)
o Imports (negative)
o Net investment
o Net transfers
Capital and financial account
o Foreign investment in Canada (positive)
o Canada investment abroad (negative)
o Statistical discrepancy
Official settlements balance
o Governments holding of foreign currency
If official reserves increase, the official settlements balance is negative
If official reserves decrease, the official settlements balance is positive

USA 2010 $ (Billions)
X
M
Net interest
Net transfers


Official settlements balance

Capital and financial account
Foreign investment in US
Investment abroad

Statistical discrepancy
1754
-2215
167
-142
-436

-3


1408
-1200

231
439

Expects us to know:
Most recent numbers sums up to a deficit
Foreign invest in America is far greater than what they are investing abroad

Current account predominantly measure sinternational trade

In Canada:
Current account (CA) had a deficit in 1980s
Deficit decreased in the 1990s after the Free Trade Agreements
We then had a surplus in 2000s
Moved back to deficit in 2009 and 2010

Net borrower Country that has borrowed more from other countries than it has
lent
Net lender Country that has lent to other countries more than it has borrowed

* Net borrow and net lender are annual terms meaning that whether they are a net
borrower or lender can change by year!

Worlds largest net borrower is USA

Debtor nation entire history, has borrowed more than it has lent
Creditor nation entire history, has lent more than it has borrowed

Worlds largest debtor nation is USA

Government sector balance (T-G)
Private sector balance (S-I)

Y = C + I + G + X M
Y = C + S + T

C + I + G + X M = C + S + T
X M = (S I) + (T G)

USA $ (Billions 2010)
X
M
G
T
S
I

X-M
T-G
S-I
1818
2354
2993
1698
2598
1839

-526
-1295
759