EC140 Chapter Notes - Chapter 35: Mercantilism, The Foreign Exchange, Demand Curve

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11 Apr 2016
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Document Summary

Summary of a country"s transacions with the rest of the world. Credits: any transacion that is an inlow of money in the country"s economy. Debits: any transacion that is an ouflow of money in the country s economy. Imports of goods, services and bond purchases by naionals. Current account: in which trade (trade account) and interest dividends received or payed over bonds are recorded (capital service account) Capital account: in which receipts of bond sells and purchases are recorded. The balance of payments must always equal 0. Media mistakes the term balance of payments deicit for current account deicit. There cannot be a balance of payments deicit. Balance of payments = ca + ka = 0. When a country trades with another there must be an exchange of currencies. The exchange rate determines how much of a currency can be exchanged for another. It"s the most volaile of all macroeconomic variables. An appreciaion is a fall in the exchange rate.

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