Macroeconomics
Balance of Trade Net exports, or the (X − M) componentoftheGDP,isthedifferencebetweenacountry’stotal exportsofgoodsandservices(X)andtotalimportsofgoodsandservices(M).Itrepresentsan economy’s balance of trade : ➔ A tradesurplus occurswhenthetotalexportsofgoodsandservicesexceedthetotalimportsof goods and services, making net exports positive: X > M → net exports > 0. ➔ A tradedefcit occurswhenthetotalimportsofgoodsandservicesexceedthetotalexportsof goods and services, making net exports negative: X < M → net exports < 0. 2. Net Income From Abroad: A country’s households and frms receive incomes from abroad and/or pay incomes toentitiesabroadintheformofprofts,interest,anddividendsearnedon directinvestmentabroadandforeignearningsoninvestmentsinthecountry(i.e.,factorincome fromabroad).Thenetincomefromabroadis,therefore,thedifferencebetweenincomereceipts from abroad and income payments to other countries. a. Income Receipts From Abroad: These represent the money received by a domestic frm or household from a foreign frm or household also known as income from investment .Suchcasesincluderewardsforholdingassetsabroadsuchasdividendson foreign stocks, interest on foreign bonds and investments, rent on foreign land, and proftonforeignenterprise,aswellasemployees’compensation,whichconsistsofthe wagesearnedbythecountry’sresidentsworkingabroad.Receiptsofthiskindofmoney areconsideredanexportrecordedasacreditentryontheCA. Forexample,theproftsof an American factory operating in China are recorded as credit on the U.S. current account. b. Income Payments Abroad: These represent the money paid by domestic frms and households to frms and households abroad also known as investment payments . Whenforeignersinvestinacountry’sfnancialassets,land,andenterprise,orworkina foreign country that pays their wages,theyareentitledtorewards.Theserewardsare considered imports to thedomesticeconomysincetheyrepresentleakages,ormoney going out of the country and are, therefore, recorded as a debit entry on the CA. For example, when a Spanish citizen opens a savings account in an American bank inthe U.S., the interest this person receives is recorded as a debit on the U.S. current account. The net income from abroad is the difference betweenincomesreceivedfromabroad and incomes paid to entities abroad:
Net income from abroad = income receipts from abroad − income payments abroad
3. NetUnilateralTransfers: Thesearepaymentsandreceiptsforwhichthereisnocorresponding exchange of actual goods and services. They include government transfers payments to and receipts from international organizations and foreign aid, as well as transfers by private households andindividuals,suchasworkers’remittances. Remittances aretransfersofmoney
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