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4. The Balance of Payments The Current Account The Financial Account The Capital Account Reason for a Zero Balance Capital Flows Open Economy Macroeconomics > Capital Flows Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/economics/textbooks/boundless-economics-textbook/open-economy-macroeconomics-32/capital-flows-129/

5. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

6. Key terms balance of payments A record of all monetary transactions between a country and the rest of the world balance of trade The difference between the monetary value of exports and imports in an economy over a certain period of time. central bank The principal monetary authority of a country or monetary union; it normally regulates the supply of money, issues currency and controls interest rates. credit An addition to certain accounts. debit A sum of money taken out of an account. debt forgiveness The partial or total writing down of debt owed by individuals, corporations, or nations. foreign exchange The changing of currency from one country for currency from another country. interest rate The percentage of an amount of money charged for its use per some period of time (often a year). net exports The difference between the monetary value of exports and imports. Free to share, print, make copies and changes. Get yours at www.boundless.com Open Economy Macroeconomics

7. Exchange Rates Exchange rates are constantly fluctuating to ensure that the quantity of currency supplied equals the quantity demanded. Because of this, the inflows and outflows of money are equal, creating a balance of payments equal to zero. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Exchange rates." Public domain http://commons.wikimedia.org/wiki/File:Exchange_rates.JPG View on Boundless.comPublic domainhttp://commons.wikimedia.org/wiki/File:Exchange_rates.JPGView on Boundless.com Open Economy Macroeconomics

8. Global Current Accounts The map shows the per capita current accounts surpluses and deficits of countries around the world from 1980 to 2008. Deeper red implies a higher per capita deficit, while deeper green implies a higher per capita surplus. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "Cumulative Current Account Balance per capita." Public domain http://en.wikipedia.org/wiki/File:Cumulative_Current_Account_Balance_per_capita.png View on Boundless.comPublic domainhttp://en.wikipedia.org/wiki/File:Cumulative_Current_Account_Balance_per_capita.png View on Boundless.com Open Economy Macroeconomics

9. U.S. Current Account The chart shows the current account deficit of the U.S., both in dollars and as a percent of GDP. Deficits in the current account must be offset by surpluses in the financial and capital accounts. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "U.S. Trade Deficit Dollars and percentage GDP." CC BY-SA http://en.wikipedia.org/wiki/File:U.S._Trade_Deficit_Dollars_and_percentage_GDP.png View on Boundless.comCC BY-SAhttp://en.wikipedia.org/wiki/File:U.S._Trade_Deficit_Dollars_and_percentage_GDP.png View on Boundless.com Open Economy Macroeconomics

10. FDI in Austria Austria has experienced a surplus of foreign direct investment: more foreign investors invest in Austria than Austrian investors do in the rest of the world. This contributes to a financial account surplus. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Foreign Direct Investment in Austria." GNU FDL http://commons.wikimedia.org/wiki/File:Foreign_Direct_Investment_in_Austria.gif View on Boundless.comGNU FDLhttp://commons.wikimedia.org/wiki/File:Foreign_Direct_Investment_in_Austria.gifView on Boundless.com Open Economy Macroeconomics

11. Natural Gas Rights If a U.S. company sold its rights to drill for natural gas off the southern coast of the U.S., it would be recorded as a credit in the capital account. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "US Gulf of Mexico offshore gas." Public domain http://en.wikipedia.org/wiki/File:US_Gulf_of_Mexico_offshore_gas.jpg View on Boundless.comPublic domainhttp://en.wikipedia.org/wiki/File:US_Gulf_of_Mexico_offshore_gas.jpgView on Boundless.com Open Economy Macroeconomics

12. Attribution Wikipedia. "Balance of payments." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Balance_of_paymentsCC BY-SA 3.0http://en.wikipedia.org/wiki/Balance_of_payments Wikibooks. "IB Economics/International Economics/Balance of payments." CC BY-SA 3.0 http://en.wikibooks.org/wiki/IB_Economics/International_Economics/Balance_of_paymentsCC BY-SA 3.0 http://en.wikibooks.org/wiki/IB_Economics/International_Economics/Balance_of_payments Wikipedia. "Balance of payments." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Balance_of_paymentsCC BY-SA 3.0http://en.wikipedia.org/wiki/Balance_of_payments Wiktionary. "balance of trade." CC BY-SA 3.0 http://en.wiktionary.org/wiki/balance_of_tradeCC BY-SA 3.0http://en.wiktionary.org/wiki/balance_of_trade Wikipedia. "debit." CC BY-SA 3.0 http://en.wikipedia.org/wiki/debitCC BY-SA 3.0http://en.wikipedia.org/wiki/debit Wikipedia. "credit." CC BY-SA 3.0 http://en.wikipedia.org/wiki/creditCC BY-SA 3.0http://en.wikipedia.org/wiki/credit Wikipedia. "Current account." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Current_accountCC BY-SA 3.0http://en.wikipedia.org/wiki/Current_account Wikipedia. "Balance of payments." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Balance_of_paymentsCC BY-SA 3.0http://en.wikipedia.org/wiki/Balance_of_payments Wiktionary. "central bank." CC BY-SA 3.0 http://en.wiktionary.org/wiki/central_bankCC BY-SA 3.0http://en.wiktionary.org/wiki/central_bank Wiktionary. "interest rate." CC BY-SA 3.0 http://en.wiktionary.org/wiki/interest_rateCC BY-SA 3.0http://en.wiktionary.org/wiki/interest_rate Wikipedia. "Capital account." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Capital_accountCC BY-SA 3.0http://en.wikipedia.org/wiki/Capital_account Wikipedia. "Balance of payments." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Balance_of_paymentsCC BY-SA 3.0http://en.wikipedia.org/wiki/Balance_of_payments Wikipedia. "debt forgiveness." CC BY-SA 3.0 http://en.wikipedia.org/wiki/debt%20forgivenessCC BY-SA 3.0http://en.wikipedia.org/wiki/debt%20forgiveness Wikipedia. "Capital account." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Capital_accountCC BY-SA 3.0http://en.wikipedia.org/wiki/Capital_account Wikipedia. "Balance of payments." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Balance_of_paymentsCC BY-SA 3.0http://en.wikipedia.org/wiki/Balance_of_payments Wiktionary. "foreign exchange." CC BY-SA 3.0 http://en.wiktionary.org/wiki/foreign_exchangeCC BY-SA 3.0http://en.wiktionary.org/wiki/foreign_exchange Wikipedia. "net exports." CC BY-SA 3.0 http://en.wikipedia.org/wiki/net%20exportsCC BY-SA 3.0http://en.wikipedia.org/wiki/net%20exports Free to share, print, make copies and changes. Get yours at www.boundless.com Open Economy Macroeconomics

13. Wikipedia. "Balance of payments." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Balance_of_paymentsCC BY-SA 3.0http://en.wikipedia.org/wiki/Balance_of_payments Free to share, print, make copies and changes. Get yours at www.boundless.com Open Economy Macroeconomics