Macroeconomics
from people working abroadforayearormorebackto their families at home. Transfers paid by the government or households to foreign countries are considered importsrecordedasa debit on the CA, whereas transfers received by the domestic government and households are considered exports recorded as a credit on the CA. Net unilateral transfers = transfer incomes − transfer payments
Once the three componentsoftheCAareidentifed,thecurrentaccountbalancecanbecalculatedas follows: CA = net exports + net income from abroad + net unilateral transfers
Table 1: Hypothetical Example of the CA on a Country’s BOP in a Given Year Current Account
Billions of Dollars ($)
(1) Export of goods
2,400
(2) Import of goods
−1,700
(3) Export of services
1,000
(4) Import of services
−1,200
(5) Balance of trade/Net exports = (1) − (2) + (3) − (4)
500
(6) Income receipts from abroad
700
(7) Income payments abroad
−600
(8) Net income from abroad = (6) − (7)
100
(9) Transfer incomes
400
(10) Transfer payments
−800
(11) Net unilateral transfers = (9) − (10)
−400
(12) Balance on the CA = (5) + (8) + (11)
200
Dependingonthebalancesofitsthreecomponents,theCAcanbeindefcitorsurplus.Intable1,there isa currentaccountsurplus of$200billionbecausetotalexports(credititems,+)exceedtotalimports (debit items, −). Conversely, a current account defcit occurswhentotalimports(debititems)exceed total exports (credit items), making the balance on the CA negative (e.g., −$200 billion).
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