Thursday, December 8, 2011

How to calculate the current account balance (given the following)?

Given the data (over the years) on following :


1) Private Savings


2) Private Investment


3) Excess of Government expenditure over revenue (D-T)





How to calculate current account balance?


or current account balance as a percentage of GDP?|||The economy鈥檚 financial flows are a closed system, which means that one sector鈥檚 deficit is another鈥檚 surplus, and vice versa. There is no way around it, just as it is impossible for every country in the world to have a trade surplus; at least one country must have a trade deficit for the others to have surpluses. Which means that the following condition must hold in an equilibrium in an open economy:





PSB - GD = CAB





Where: PSB is the private sector financial balance, defined as the difference between savings and investments of private households; GD is the government deficit (expenditure minus revenue); and CAB is the current account balance which takes the international capital flow into consideration.

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