Macro 6.1 Balance of Payments

[@cartilo2619]

the balance of payments game was great esp with explanations like "resources leave the country so it's sale of capital good", helped me distinguish them from assets, thanks for the helpful resources!

[@ReviewEcon]

You're very welcome! Good luck with your exams!

[@iunlisted1176]

saving my grades fr fr

[@American_2]

fax

[@ReviewEcon]

Awesome! Good luck with your exams!

[@amyliu7745]

At 1:55, if the income earned from the investment is going to be counted in the current account, what is counted in the capital and financial account of a direct foreign investment then?

[@ReviewEcon]

The original purchase of the investment is CFA. So if I buy Alibaba stock, that is CFA, when I earn dividends on that stock those dividends are CA.

[@myplace571]

by any chance did you switch surplus and deficit? everywhere online its the opposite so im a bit confused. shouldnt trade surplus be exports>imports ?

[@ReviewEcon]

I think my scale graphic may have been a bit strange, but that is what I said and meant (United you are referring to a different part of the video than I expect). But the graphic looks the opposite to some people. Good luck!

[@ziad975]

I didnt get why it should balance out? why would a decrease in the current account cause and increase in the financial account?

[@ReviewEcon]

Gets a little above the introductory class and all you need to know on the AP exam is that they always balance out. But... If I buy something from China, I will sell my US dollars. The purchase of the good from China is counted in the current account for the value of the good. The selling of US dollars is actually counted as an outflow in the capital and financial account as well. This dual entry accounting means the accounts always automatically balance each other out. Also, when there are changes in capital inflows and outflows, it leads to changes in exchange rates, which change the relative prices of imports and exports, which leads to a balancing out in the current account. But in the meantime, dual accounting in the capital and financial account means that the capital flows don't actually change the Capital and financial account immediately. But again, this is not part of the AP exam. You only need to know if they automatically balance out. And you don't really need to know about the flows of currency as being part of the Capital and financial account. Good luck on Friday!

[@leos8292]

@@ReviewEconhelpful, thanks! All the videos including AP board just say they balance and never really explain why.

[@amyliu7745]

At 2:30, is debit the same thing as debt?

[@ReviewEcon]

Debit is the term used for a decrease in the balance. Not necessarily negative balance just decreasing.

[@amyliu7745]

@@ReviewEcon Oh okay gotcha. So is deficit the same thing as debt then?

[@ReviewEcon]

@amyliu7745 for the balance of payments, deficit means negative value. I hesitate to use the word debt as it isn't owed to anyone or anything.