economics terms

Balance of Payments

One feature of double entry bookkeeping is that flows of money into and out of a country for various reasons have to balance in total.  We can express a simplified view of this point as the balance of payments:

Current Account = Capital Account + Change in Official Reserves

Here the current account can be thought of as exports minus imports, which is often identified as the trade balance, plus net income on foreign assets and transfers.  This net source of foreign currency must be offset by either net investment in foreign assets (the capital account) or changes in official reserves.  (A statistical discrepancy is generally also added to account for difficulties in securing precise measurements of the various items.)

The balance of payments establishes a fundamental link between the factors affects goods transactions (exports and imports) and the factors affecting financial flows.  For example, a country with a trade deficit (imports greater than exports) must have an interest rate (or other financial market considerations) that attract an offseting inflow of capital investment.

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Economics Terms

Arbitrage Pricing
Arbitrage Profit
Average Cost
Balance of Payments
Budget Constraint
Call Option
Concave Function
Consumer Surplus
Consumption Function
Convex Function
Deadweight Loss
Demand Curve
Economic Agent
Economic Model
Economics Textbook
Endogenous Technical Change
Exchange Rate
Expectations Hypothesis
Federal Funds (Fed Funds) Rate
Fixed Exchange Rate
Floating Exchange Rate
Frictional Unemployment
Gross Domestic Product (GDP)
Income Effect
Income Elasticity
Indifference Curve
Interest Rate
Intertemporal Substitution
Jensen's Inequality
Marginal Cost
Marginal Product
Marginal Utility
Optimizing Behavior
Perfect Competition
Phillips Curve
Price Elasticity
Producer Surplus
Production Function
Production Possibility Frontier
Put Option
Reservation Wage Rate
Risk Aversion
Structural Unemployment
Substitution Effect
Supply Curve
Taylor Rule
Technological Growth
Term Structure
Theory of the Consumer
Theory of the Firm
Unemployment Rate
Utility Function
Velocity of Money
Yield Curve