ECON 1051 1nd Edition Lecture 59 Outline of Last Lecture I. Case 1: Government should stay away from stabilizing ADII. Case 2: Expansion III. Case 3: Inflation Growing in the Economy Outline of Current Lecture I. Types of Economies II. Current AccountIII. Financial AccountCurrent LectureI. Types of Economiesa. Open Economyi. An economy that has interactions in trade or finance with other countriesb. Closed Economyi. An economy that has no interactions in trade or finance with other countries c. Balance of Payments i. The record of a country’s trade with other countries in goods, services and assets ii. Table 29.1 in the book shows the balance of payments for the United States in 2010. Notice that table contains three “accounts”: 1. The current account2. The financial account3. The capital accountII. Current Accounta. What goes into it?i. Exported goodsii. Imported goods 1. Entered in as a negative 2. Balance of trade is the difference between the two a. AKA trade deficit iii. Export of servicesiv. Imports of services 1. Entered in as a negative These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.2. Balance of services is the difference between the two a. Net export is the difference between the balance of services and balance of trade v. Income received on investments 1. Positive vi. Income payments on investments 1. Negative a. Interest and dividend payments US national earn on foreign investments b. Net Income on investments is the difference between the two i. Reason: interest rates in foreign countries are highervii. Net Transfers1. Foreign aid a. Negative (because when ever money leaves the US it’s reported with a negative number) viii. Balance on current account1. The sum of everything2. Negative numberIII. Financial Accounta. What it contains:i. Increase in foreign holdings assets in the United States 1. When foreigners buy our assets it gets entered hereii. Increase in U.S. holdings of assets in foreign countries 1. When Americans buy foreign assets it gets entered here2. Negative because it’s money leaving the states iii. Balance on financial account1. The difference between the two b. How it works: i. The part of payments that records purchases of assets a country has made abroad and foreign purchases of assets in the country ii. There is capital outflow from the United States when an investor in the USbuys a bond issued by a foreign company or government or when a US firm builds a factory in another country. There is capital inflow into the USwhen a foreign investor buys a bond issued by a US firm or by the government or when a foreign firm builds a factory in the USiii. Positive financial account balance is the same as saying there’s a net income inflow iv. US has had positive balance on financial account for a while, two decades or
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