Per-Åke Andersson Karlstad Universitet Makroekonomi VT2011 Sparande

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Macroeconomics: Principles, Applications, and Tools O’Sullivan, Sheffrin, Perez 6/e. 2 of 33 C H A P T E R 8 Why Do Economies Grow? 8.2 Saving and Investment ●saving Income that is not consumed. CAPITAL DEEPENING

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Macroeconomics: Principles, Applications, and Tools O’Sullivan, Sheffrin, Perez 6/e. 3 of 28 C H A P T E R 19 The World of International Finance balance of payments A system of accounts that measures transactions of goods, services, income, and financial assets between domestic households, businesses, and governments and residents of the rest of the world during a specific time period. current account The sum of net exports (exports minus imports) plus net income received from abroad plus net transfers from abroad. THE CURRENT ACCOUNT, THE FINANCIAL ACCOUNT, AND THE CAPITAL ACCOUNT 19.3

4 Offentliga sektorns skatteintäkter 2007

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Macroeconomics: Principles, Applications, and Tools O’Sullivan, Sheffrin, Perez 6/e. 5 of 28 C H A P T E R 19 The World of International Finance financial account The value of a country’s net sales (sales minus purchases) of assets. capital account The value of capital transfer and transaction in nonproduced, nonfinancial assets in the international accounts. THE CURRENT ACCOUNT, THE FINANCIAL ACCOUNT, AND THE CAPITAL ACCOUNT 19.3

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Macroeconomics: Principles, Applications, and Tools O’Sullivan, Sheffrin, Perez 6/e. 6 of 28 C H A P T E R 19 The World of International Finance Rules for Calculating the Current, Financial, and Capital Accounts Here is a simple rule for understanding transactions on the current, financial, and capital accounts: Any action that gives rise to a demand for foreign currency is a deficit item. Any action that gives rise to a supply of foreign currency is a surplus item. The current, financial, and capital accounts of a country are linked by a very important relationship: current account + financial account + capital account = 0 THE CURRENT ACCOUNT, THE FINANCIAL ACCOUNT, AND THE CAPITAL ACCOUNT 19.3

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Macroeconomics: Principles, Applications, and Tools O’Sullivan, Sheffrin, Perez 6/e. 7 of 28 C H A P T E R 19 The World of International Finance Rules for Calculating the Current, Financial, and Capital Accounts THE CURRENT ACCOUNT, THE FINANCIAL ACCOUNT, AND THE CAPITAL ACCOUNT 19.3

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Macroeconomics: Principles, Applications, and Tools O’Sullivan, Sheffrin, Perez 6/e. 8 of 28 C H A P T E R 19 The World of International Finance Rules for Calculating the Current, Financial, and Capital Accounts net international investment position Domestic holding of foreign assets minus foreign holdings of domestic assets. THE CURRENT ACCOUNT, THE FINANCIAL ACCOUNT, AND THE CAPITAL ACCOUNT 19.3 sovereign investment fund Assets accumulated by foreign governments that are invested abroad.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Macroeconomics: Principles, Applications, and Tools O’Sullivan, Sheffrin, Perez 6/e. 9 of 28 C H A P T E R 19 The World of International Finance WORLD SAVINGS AND U.S. CURRENT ACCOUNT DEFICITS APPLYING THE CONCEPTS #2: What factors may allow the United States to continue running large trade deficits with the rest of the world? The 2006 Economic Report of the President directly addressed whether the United States can continue to run large current account deficits and, of course, financial account surpluses. In the report, the government recognized that the current account deficits would eventually be reduced. However, it also highlighted a number of factors suggesting the deficits could continue for a long period of time. For the United States to continue to run a current account deficit, other countries in the world need to continue to purchase U.S. assets. In recent years, four major countries experienced circumstances that encouraged them to save by purchasing assets from abroad: Japan, Germany, Russia, and China. For the United States to continue to run trade deficits in the future, these or other countries must want to continue to save more than they want to invest domestically. A P P L I C A T I O N 2

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