Abstract
The balance of payments registers all the international transactions of a country, and it is part of the National Accounts system, which registers economic activity based on a standardized accounting system between nations. This chapter describes the balance of payments and the main aggregates of the National Accounts. We show that the current-account balance results from the difference between the economy’s aggregate savings and investment. We discuss the notion of equilibrium of the balance of payments as well as the condition for sustainability of current account deficits. Finally, we discuss the main hypothesis of different open economy models regarding the functioning of the goods, assets, and money markets.
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