Chapter 2: National Income Accounting

and the Balance of Payments

International Macroeconomics
• International Trade studies the effects of
globalization on how the resources of a country are
allocated among different productive activities
• International macroeconomics/finance
introduces four aspects of economic life that are
ignored in international trade:
– Unemployment
– Savings
– Trade imbalances
– Money, the price level, and exchange rates
International Macroeconomics
• International macroeconomics tries to explain the
behavior—across countries at any given time, or
across time for a given country—of these economic
variables
• These variables are measured according to the
rules of:
– National income accounting
– Balance of payments accounting
Learning Objectives
1 Discuss concept of current account balance.
2 Use the current account balance to extend national
income accounting to open economies.
3 Apply national income accounting to the interaction of
saving, investment, and net exports.
4 Describe balance of payments accounts and explain
their relationship to the current account balance.
5 Relate the current account to changes in a country’s net
foreign wealth.
Preview
• National income accounts
– measures of national income
– measures of value of production
– measures of value of expenditure
• National saving, investment, and the current account
• Balance of payments accounts
The National Income Accounts
Measuring the aggregate economy

National income accounts = system used to measure

overall output and expenditure in a country.

3 (roughly) equivalent ways to measure the

macroeconomy:
1. Total expenditures on (final) products
2. Total production (measured as value added)
3. Total income

• Idea is value of production = expenditure on production

= someone’s income
Measuring the aggregate economy
Stages of Price of Value added Income
production transaction

1. Farmer grows $0.10 $0.10 $0.10 to farmer

wheat, sells it to
miller

2. Miller turns wheat $0.25 $0.15 $0.15 to miller

to flour, sells to
baker

3. Baker makes a $0.50 $0.25 $0.25 to baker

muffin, sells it to
restaurant

4. Restaurant sells $1.00 $0.50 $0.50 to restaurateur

muffin to consumer

Total $1.00 $1.00

Spending on
final good
Total value Total
added income
Gross National Product
• Gross national product (GNP) is the value of all final
goods and services produced by a nation’s factors of
production in a given time period.
– Factors of production are the resources used in production (e.g.
labor, capital, and natural resources)
– The value of final goods and services produced by US-owned
factors of production are counted as US GNP.

• GNP can be measured through production (value added),

expenditure, or income approach
• The expenditure approach is the most useful in
international macroeconomic theory
Gross National Product
• GNP is calculated by adding the value of expenditure on
final goods and services produced:
• There are 4 types of expenditure:
1. Consumption: expenditure by domestic consumers
2. Investment: expenditure by firms on buildings & equipment
3. Government purchases: expenditure by governments on goods
and services
4. Current account balance (exports minus imports): net
expenditure by foreigners on domestic goods and services

GNP = C + I + G + EX – IM
U.S. GNP and Its Components

America’s gross national product for the first quarter of 2016 can be broken down
into the four components shown.
Source: U.S. Department of Commerce, Bureau of Economic Analysis. The figure
shows 2016:QI GNP and its components at an annual rate, seasonally adjusted.
Vietnam GNP and Its Components

Share of GNP in Year 2023

80

70

60

50

40

30

20

10

0
US Vietnam
-10
Consumption Investment Government Current Accout
Total U.S. Federal Government Spending

NOTE: This graph include transfer payments which are not included as
government spending in GNP (to avoid double-counting)
Vietnam Government Spending (2020)

15%

10% Education
Health
Military
9% Other
66%
U.S. Federal Government Spending Over
Time
U.S. State and Local Government
Spending
Measuring the aggregate open economy
Stages of Price of transaction Value added Income
production

1. Canadian $0.10 $0.10 $0.10 to Canadian

Farmer grows farmer
wheat, sells it to
US miller
2. US Miller turns $0.25 $0.15 $0.15 to US miller
wheat to flour,
sells to US baker

3. US Baker $0.50 $0.25 $0.25 to US baker

makes a muffin,
sells it to US
restaurant
4. US Restaurant $1.00 $0.50 $0.50 to US
sells muffin to US restaurateur
consumer
US GNP $1.00 - $0.10 = $0.90 $0.90 $0.90

Spending on Total income to

final good - US residents
Total value
imports
added by US
firms
Measuring the aggregate open economy
Stages of Price of transaction Value added Income
production

1. US Farmer $0.10
grows wheat, sells
it to US miller

2. US Miller turns $0.25

wheat to flour,
sells to Mexican
baker
3. Mexican Baker $0.50
makes a muffin,
sells it to US
restaurant
4. US Restaurant $1.00
sells muffin to US
consumer
US GNP

What if there were a US Farmer but a Mexican Baker?

From GNP to National Income
National Income = GNP – Depreciation + Net Unilateral
Transfers
• National income is the income earned by a nation’s
factors of production.
• Depreciation is the economic loss due to the wearing out
of machinery and structures as they are used
• Gross National Product – Depreciation = Net National
Product
From GNP to National Income
National Income = GNP – Depreciation + Net Unilateral
Transfers
• Unilateral transfers are payments made without getting something in
return
• Net Unilateral Transfers = Unilateral Transfers received from
foreigners – Unilateral Transfers paid to foreigners
• Examples of unilateral transfers are pension payments to retired
citizens living abroad, reparation payments, and foreign aid.
– For the U.S. in 2023, the balance of such payments amounted to around
–$220 billion, representing a 0.8 percent of GNP net transfer to
foreigners.
U.S. Net Unilateral Transfers
Vietnam Net Unilateral Transfers
From GNP to GDP
• GDP = GNP - net receipts of factor income from the
rest of the world.
• Gross Domestic Product (GDP) is the market value of all
final goods and services produced within the country’s
borders
– Recall that GNP is the value of all final goods and services
produced by the country’s factors of production (e.g. capital and
labor) anywhere in the world
• Net receipts of factor income = payments from foreign countries for
factors of production - payments to foreign countries for factors of
production
From GNP to GDP
• GDP = GNP - net receipts of factor income from the
rest of the world.
• For the United States, net receipts of factor income are
primarily the income residents of the US earn on wealth
they hold in other countries less the payments residents of
the US make to foreign owners of wealth located in the
US.
• As a practical matter, movements in U.S. GDP and GNP
usually do not differ greatly.
– GNP tracks national income more closely than GDP
does, and national welfare depends more directly on
national income than on GDP.
From GNP to GDP
From GNP to GDP
National Income Identity for an Open
Economy
• We will denote GNP by the symbol Y.
• We have seen before that government statisticians break
down total expenditure (GNP) into four categories of
expenditure:
– Consumption (C)
– Investment (I)
– Government Purchases (G)
– Current Account (CA) = Exports (EX) – Imports (IM)

• Y = C + I + G + EX – IM
CA and International Borrowing
• CA = EX – IM

• When EX > IM, CA > 0. The country has a current account

surplus
• When EX < IM, CA < 0. The country has a current account
deficit
CA Surplus = International Lending
• CA = EX – IM

• When EX > IM, CA > 0. The country has a current account

surplus
• This requires domestic residents to lend the amount of the
current account balance (CA) to foreign residents
– Suppose there are only two countries, Anne and Bob. Anne’s exports to
Bob equal $100 and Anne’s imports from Bob equal $75. This is possible
only if Bob borrows $25 from Anne.
CA Deficit = International Borrowing
• CA = EX – IM

• When EX < IM, CA < 0. The country has a current account

deficit
• This requires domestic residents to borrow the amount of
the current account balance (CA) from foreign residents
– Suppose there are only two countries, Anne and Bob. Anne’s exports to
Bob equal $100 and Anne’s imports from Bob equal $125. This is possible
only if Anne borrows $25 from Bob.
International Lending/Borrowing = International
Asset Purchases/Sales
• Borrowing money is the same as selling a financial asset
– When a corporation borrows money it does so by selling corporate
bonds, which are financial assets

• Lending money is the same as buying a financial asset

– When you buy US Treasury bonds, you are lending money to the
US government
Net Foreign Wealth
• Net Foreign Wealth of a country = Value of domestic
residents’ financial assets that were bought from foreign
residents – Value of foreign residents’ financial assets that
were bought from domestic residents
CA > 0 means Net Foreign Wealth ↑
• CA = EX – IM. So, when EX > IM, CA > 0 and the country
has a current account surplus.
• We saw that this requires domestic residents to lend the
amount of the current account balance (CA) to foreign
residents
• This lending is the same as domestic residents buying
assets from foreign residents
• Therefore, the country’s net foreign wealth increases by
the amount equal to CA
CA < 0 means Net Foreign Wealth ↓
• CA = EX – IM. So, when EX < IM, CA < 0 and the country
has a current account deficit.
• We saw that this requires domestic residents to borrow the
amount of the current account balance (CA) from foreign
residents
• This borrowing is the same as domestic residents selling
assets to foreign residents
• Therefore, the country’s net foreign wealth decreases by
the amount equal to CA
CA and International Borrowing
• Therefore, the current account balance is a rough
measure of the increase in net foreign wealth
– So a string of current account deficits (surpluses) can lead to a
dramatic decrease (increase) in a country’s net foreign wealth

• Net Foreign Wealth is also called Net International

Investment Position (NIIP)
U.S. Current Account and Net International
Investment Position, 1976–2015

A string of current account deficits starting in the early 1980s reduced America’s
net foreign wealth until, by the early 21st century, the country had accumulated a
substantial net foreign debt.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
U.S. Net Foreign Wealth (NIIP), update
 -200
-180
-160
-140
-120
-100
0

-80
-60
-40
-20
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

Net foreign wealth (US$ bn)

2014
2015
2016
2017
2018
2019
Vietnam Net Foreign Wealth (NIIP)

2020
2021
2022
2023
2024
 0

-80
-70
-60
-50
-40
-30
-20
-10
1995
1996
1997
1998
1999
% of GDP

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Vietnam Net Foreign Wealth (NIIP)

2020
2021
2022
2023
2024
Net Foreign Wealth (NIIP) from 2024

Top 5 Lowest NIIP (billions of USD) % of GDP

United States -27,222 93
India -1,310 34
France -901 30
Brazil -847 45
Spain -703 43

Top 5 Highest NIIP (billions of USD)

Japan 3,322 86
Germany 3,305 74
China 3,105 17
Hong Kong 2,044 500
Norway 1,730 378
Expenditure and Production in an Open
Economy
Y = C + I + G +CA
CA = Y – (C + I + G )
• When domestic production (Y) > domestic expenditure (C + I + G),
current account = “trade” balance > 0, exports > imports
– when a country exports more than it imports, it earns more income
from exports than it spends on imports. So,
– net foreign wealth increases
• When domestic production < domestic expenditure, exports < imports,
current account = “trade” balance < 0
– when a country exports less than it imports, it earns less income
from exports than it spends on imports. So,
– net foreign 12-41
wealth decreases
Saving and the Current Account
• National saving (S) = national income (Y) that is not spent
on consumption (C) or on government purchases (G).

• S=Y–C–G

• Note: in a closed economy

– Y=C+I+G

– S=I
12-42
 13-43

National Saving = Private Saving + Public

Saving
The government’s net tax
revenues are denoted T.
S=Y–C–G
T = tax revenues – transfer
S=Y–C–G–T+T payments
S=Y–T–C+T–G
Y – T is total after-tax income
Private Saving: Gov’t Saving: or disposable income
Sp = Y – T – C Sg = T – G

National Saving = Private Saving + Public Saving

S = Sp + S g
Government Budget
• Budget Surplus and Budget Deficit
– If T > G, the government runs a budget surplus
because it receives more money than it spends.
 T – G represents public saving.
– If G > T, the government runs a budget deficit because
it spends more money than it receives in tax revenue.
 In the 2010 fiscal year, the US federal government
ran a budget deficit of $1.3 trillion
 2018 - $779 billion
 2020 - $3.1 trillion
– biggest deficit as share of GDP (15%) since 1945
 2024 - $1.8 trillion
S = Sp + Sg
Gross Domestic Savings (% of GDP)
How Is the Current Account Related to
National Saving?
Y = C + I + G + CA
CA = Y – C – I – G
= (Y – C – G ) – I
= S – I
current account = national saving – investment

current account = net foreign investment

• A country that imports more than it exports has low national saving
relative to investment.
12-47
How Is the Current Account Related to
National Saving? (cont.)
CA = S – I or I = S – CA
• Countries can pay for investment either by using domestic
saving or by borrowing foreign funds equal to the current
account deficit.
– a current account deficit implies a financial asset
outflow or negative net foreign investment.
• When S > I, then CA > 0 and net foreign investment and
financial asset inflows for the domestic economy are
positive.
12-48
How Is the Current Account Related to
National Saving? (cont.)
CA = Sp + Sg – I
= Sp – government deficit – I

• Government deficit is negative government saving

– equal to G – T
• A high government deficit contributes to a
negative current account balance, all other things
equal.
12-49
The Balance of Payment
Accounts
Balance of Payments Accounts
• A country’s balance of payments accounts summarize its
payments to and its receipts from foreigners.
• Each international transaction involves a domestic party
and a foreign party
• Each international transaction enters the accounts twice:
– once as a credit
– once as a debit

• Any transaction resulting in a payment from foreigners is

entered in the balance of payments accounts as a credit.
• Any transaction resulting in a payment to foreigners is
entered as a debit.
Credits: examples
• Sale of goods, services, and assets to foreign parties
• Receipt of income from assets bought from foreign parties
– Dividends received on foreign firms’ shares, interest paid on bonds
sold by foreign firms and governments, rent received on foreign
real estate

• Unilateral transfers received from foreign parties

Debits: examples
• Purchase of goods, services, and assets from foreign
parties
• Payment of income for domestic assets sold to foreign
parties
– Dividends paid on domestic firms’ shares, interest paid on bonds
sold by domestic firms and government, rent paid on domestic real
estate

• Unilateral transfers given to foreign parties

Credits and Debits
• Why does each cross-border transaction appear twice in
the balance of payments accounts, once as a credit and
again as a debit?
• Suppose you pay a foreigner in dollars (debit)
• Those dollars will one way or the other return to the US
(credit), because nobody uses dollars in the foreign
country
Credits and Debits
• Suppose you pay Raul in Madrid in dollars for some
purchase (debit)
• Raul uses euros, not dollars
• So he may deposit the dollars in a US bank, as savings for
his future
• Or, he may sell the dollars—in return for euros—to, say,
Maria, who wants dollars to buy something from some
American
• Either way, the dollars you paid Raul will return to the US
(credit)
Balance of Payments Accounts
• The balance of payments accounts are separated into 3
broad accounts:
– current account: accounts for flows of goods and
services (imports and exports).
– financial account: accounts for flows of financial
assets (e.g. stocks, gov’t debt, bank deposits, FDI).
– capital account: flows of special categories of
assets (capital): typically nonmarket, non-produced,
or intangible assets like debt forgiveness, copyrights
and trademarks (minor account for US).
Examples of Balance of Payments
Accounting
• An American imports a computer from an Italian company.
• The Italian company deposits the American's check in a
U.S. bank.

Credits Debits
Computer purchase
(Current account, US good import)
Sale of bank deposit
(Financial account, US asset sale)
Examples of Balance of Payments
Accounting
• An American bus lunch in France and pays by credit card.
• French restaurant receives payment from the American’s
U.S. credit card company.

Credits Debits
Meal purchase
(Current account, US service import)
Sale of credit card claim
(Financial account, US asset sale)
Examples of Balance of Payments
Accounting
• An American buys a share of BP (a British company).
• BP deposits the money in a U.S. bank.

Credits Debits
Stock purchase
(Financial account, US asset purchase)
Bank deposit
(Financial account, US asset sale)
Examples of Balance of Payments
Accounting
• U.S. banks forgive a $5,000 debt owed by the government
of Argentina through debt restructuring.
• U.S. banks who hold the debt thereby reduce the debt by
crediting Argentina’s bank accounts.

Credits Debits
US banks debt forgiveness
(Capital account, US transfer payment)
Reduction in bank’s claims to Argentina
(Financial account, US asset sale)
Examples of Balance of Payments
Accounting
• Boeing exports an airplane to a Japanese airline
• The Japanese airline pays Boeing with $100m dollars from
their American bank account

Credits Debits
Purchase of bank deposit
(Financial account, US asset purchase)
Airplane sale
(Current account, US good export)
How Do the Balance of Payments
Accounts “Balance”?
• Due to the double entry of each transaction:
Total credits = Total debits
• Current account balance = total credits in current account
– total debits in current account
• Capital account balance = total credits in capital account –
total debits in capital account
• Financial account balance = total debits in financial
account – total credits in financial account
– Reverse of Current/Capital accounts!!
How Do the Balance of Payments
Accounts “Balance”?
Fundamental balance of payments identity:
Current account balance + Capital account balance =
Financial account balance

• Another way to write this:

Credits in current account – debits in current account
+ credits in capital account – debits in capital account
= debits in financial account – credits in financial account

Total credits = Total debits

Current Account Balance
• Current account balance = credits – debits
• Current account credits
– Exports of goods (e.g. computers)
– Export of services (e.g. payment for legal services, tourist
spending)
– Income receipts (primary income)
 E.g. interest and dividend receipts, earnings of domestic firms
and workers operating in foreign countries
– Unilateral transfers (gifts) received (secondary income)
 These are not for the purchase of goods/services nor income
for goods/services produced
Current Account Balance
• Current account balance = credits – debits
• Current account debits
– Imports of goods
– Imports of services
– Income payments (primary income)
 E.g. interest and dividend payments to foreign residents,
earnings of foreign firms and workers operating in the country
– Unilateral transfers (gifts) given
 Net unilateral transfers = gifts received – gifts given

• Roughly, current account balance equals a country’s net

exports
U.S. Balance of Payments Accounts for
2015 (billions of dollars)
Exports (including income
receipt) = credits

Imports (including income

payments) = debits

Transfers
Credits – debits Current account balance

Capital account balance

Source: U.S. Department of Commerce, Bureau of Economic Analysis, June 16,

2016, release. Totals may differ from sums because of rounding.
Financial Account Balance
• Financial inflow (borrowing)
– Foreigners loan to domestic parties by buying domestic financial assets
– Domestic assets sold to foreigners are a credit because the domestic
economy acquires money during the transaction
• Financial outflow (lending)
– Domestic parties loan to foreigners by buying foreign financial assets
– Foreign assets purchased by domestic parties are a debit because the
domestic economy gives up money during the transaction

• Financial account balance

= Total financial account debits – total financial account credits
= Net purchase of foreign assets – net sale of domestic assets to foreigners
= Lending – borrowing
= Financial (money) outflows – financial (money) inflows
= Net financial flows
= Change in net foreign wealth
How Do the Balance of Payments
Accounts “Balance”?
Current account balance + Capital account balance =
Financial account balance

• Roughly
– Trade/income deficit (negative current account
balance) is financed by net financial inflows (negative
financial account balance, i.e. borrowing from abroad)
– Trade/income surplus (positive current account
balance) results in net financial outflows (positive
financial account balance, i.e. lending abroad)
Example
• Anne and Bob are the only two countries
• Anne exports $100 of goods and services to Bob.
• In return Bob exports $75 of goods and services to Anne
plus $25 of financial assets.
• Anne’s current account balance = +$25
• Anne’s financial account balance = +$25
• Bob’s current account balance = –$25
• Bob’s financial account balance = –$25
Example
• Anne’s net foreign wealth increases by $25, the amount of
Anne’s current account balance
• Bob’s net foreign wealth decreases by $25, the amount of
Bob’s current account balance
• That is, the current account balance is the increase in a
nation’s net foreign wealth (or, International Investment
Position)
Statistical discrepancy

• In theory, Current account balance + Capital account

balance = Financial account balance
• In practice, the balance of payments accounts seldom
balance due to data imperfections (e.g. sources differ in
coverage, accuracy, and timing)
• “Statistical discrepancy” is added to the accounts to make
them balance (sometimes called Net Errors and Omissions)
• So in practice:
Current account balance + Capital account balance =
Financial account balance - statistical discrepancy
U.S. Balance of Payments Accounts for
2015 (billions of dollars)
Current + Capital account
deficit: $463.01 billion needs to
be borrowed

New lending to foreigners

New borrowing from foreigners

Net new borrowing. But should

Debits – credits be -$463.01

Mismeasurement
-$195.23 - $267.78 = -$463 billion
Financial Account Balance
• Financial account has at a number of subcategories:
1. Official (international) reserve assets
2. Financial derivatives
3. Other assets

• Official (international) reserve assets: foreign assets held by central

banks to cushion against financial instability.
– Assets include government bonds, currency, gold and accounts at
the International Monetary Fund.
– Official reserve assets sold to foreign central banks are a credit
– Official reserve assets purchased by the domestic central bank are
a debit
Official Settlements Balance
• Official settlements balance (often just called
“Balance of payments”)
= net purchase of international reserves by domestic
central bank – net purchase of domestic reserve assets
by foreign central banks
• An official settlement deficit (balance < 0)
indicates a country
– is depleting official international reserve assets and/or
– is incurring increasing debts to foreign central banks
Official Settlements Balance
• Roughly
– Net financial flows (or financial account balance) are
the net new lending by domestic parties to foreign
paties
 -$195.23 billion in 2015 for US
– Official settlements balance is the net new lending by
domestic parties to foreign parties through central bank
transactions
 $91.81 billion in 2015 for US
U.S. Balance of Payments Accounts for
2015 (billions of dollars)

New lending to foreigners by

central bank (the Fed)

New borrowing from foreign

central banks

US official settlements balance =

-$6.29-(-$98.10) = $91.81 billion
Vietnam Balance of Payments Accounts
(Q3 2019, billion of USD)
Current account
(1) Exports 76.771
Goods 72.188
Services 4.050
Income receipts (primary income) 0.533
(2) Imports 73.057
Goods 64.013
Services 4.900
Income payments (primary income) 4.144
(3) Net unilateral transfers (secondary income) 2.185
Balance on current account [(1)−(2)+(3)] 5.919
Capital Account 0
Financial Account
(4) Net acquisition of official reserve assets 4.851
(5) Net flow of other financial assets -2.197
Net financial flows [(4)+(5)] 2.654
Statistical Discrepancy -3.265

$2.654 – (-$3.265) = $5.919 billion

Vietnam Balance of Payments Accounts
(Q4 2025, billion of USD)
Current account
(1) Exports 135.985
Goods 126.318
Services 8.260
Income receipts (primary income) 1.407
(2) Imports 132.112
Goods 117.183
Services 10.547
Income payments (primary income) 4.382
(3) Net unilateral transfers (secondary income) 3.781
Balance on current account [(1)−(2)+(3)] 7.654
Capital Account 0
Financial Account
(4) Net acquisition of official reserve assets 2.355
(5) Net flow of other financial assets -7.076
Net financial flows [(4)+(5)] -4.721
Statistical Discrepancy -12.375

-$4.721 – (-$12.375) = $7.654 billion

U.S. Balance of Payments Accounts
• The U.S. has the most negative net foreign wealth in the
world, and so is therefore the world’s largest debtor nation.
• Its current account deficit in 2025 was $1.12 trillion, so
that net foreign wealth continues to decrease.
• The value of foreign assets held by the U.S. has grown
since 1980, but liabilities of the U.S. (debt held by
foreigners) has grown faster.
U.S. Gross Foreign Assets and Liabilities,
1976-2015
The U.S. Current Account and Net
International Investment Position, 1976–2015
Changes in Net Foreign Wealth (IIP)
• We have seen that a country’s net foreign wealth increases
by the amount of its net financial flows
• But net foreign wealth can change for two other reasons as
well:
– Changes in asset prices
– Changes in exchange rates
Changes in Net Foreign Wealth (IIP)
• Changes in the market price of assets previously acquired
can alter a country’s net foreign wealth.
– When Japan’s stock market lost three-quarters of its value over
the 1990s, for example, American and European owners of
Japanese shares saw the value of their claims on Japan plummet,
and Japan’s net foreign wealth increased as a result.

• Exchange rate changes have a similar effect.

– When the dollar depreciates against foreign currencies, for
example, foreigners who hold dollar assets see their wealth fall
when measured in their home currencies.
U.S. Balance of Payments Accounts
• About 70% of foreign assets held by the U.S. are
denominated in foreign currencies and almost all of U.S.
liabilities (debt) are denominated in dollars.
• Changes in the exchange rate influence value of net
foreign wealth (gross foreign assets minus gross foreign
liabilities).
– Appreciation of the value of foreign currencies makes
foreign assets held by the U.S. more valuable, but
does not change the dollar value of dollar-
denominated debt for the U.S.
Change in the Yearend U.S. Net International
Investment Position (billions of dollars) (1 of 4)
Adjustments for asset price
and exchange rate changes

Net financial flows

from previous table
Change in the Yearend U.S. Net International
Investment Position (billions of dollars) (2 of 4)
Change in the Yearend U.S. Net International
Investment Position (billions of dollars) (3 of 4)
Change in the Yearend U.S. Net International
Investment Position (billions of dollars) (4 of 4)

r Revised n.a. Not available. . . . Not applicable (*) Value between zero and +/− $50 million
1. Represents gains or losses on foreign-currency-denominated assets and liabilities due to their revaluation at current
exchange rates.
2. Includes changes due to year-to-year shifts in the composition of reporting panels and to the incorporation of more
comprehensive survey results. Also includes capital gains and losses of direct investment affiliates and changes in
positions that cannot be allocated to financial transactions, price changes, or exchange-rate changes.
3. Financial transactions and other changes in financial derivatives positions are available only on a net basis, which is
shown on line 3; they are not separately available for gross positive fair values and gross negative fair values of
financial derivatives.
4. Data are not separately available for price changes, exchange-rate changes, and changes in volume and valuation not
included elsewhere.
Note: Details may not add to totals because of rounding.
Source: U.S. Bureau of Economic Analysis.
Summary (1 of 3)
1. A country’s GNP is roughly equal to the income
received by its factors of production.
2. In an open economy, GNP equals the sum of
consumption, investment, government purchases,
and the current account.
3. GDP is equal to GNP minus net income from foreign
countries for factors of production. It measures the
value of output produced within a country’s borders.
Summary (2 of 3)
4. National saving minus domestic investment equals the current
account (≈ exports minus imports).
5. The current account equals the country’s net lending to
foreigners (net foreign investment)
6. The balance of payments accounts records flows of goods &
services and flows of financial assets across countries.
– It has 3 parts: current account, capital account, and financial
account, which balance each other.
– Transactions of goods and services appear in the current
account; transactions of financial assets appear in the
financial account.
Summary (3 of 3)
7. Official international reserve assets are a component of
the financial account, which records official assets held
by central banks.
8. The official settlements balance shows the change of a
central bank’s holdings of foreign assets relative to
foreign central banks’ holdings of domestic assets.
9. The U.S. is the largest debtor nation, and its foreign debt
continues to grow because its current account continues
to be negative.