Open economy macroeconomics

Jim Whitney

Economics 101

Open economy macroeconomics
The key to a country's "external balance" is the country's current account balance ((X-M) or NX).

Three situations are possible:

X-M = 0 X-M > 0 X-M <0

Balanced currrent account Current account surplus Current account deficit

Result: money for the U.S. to use to buy foreign assets Result: money foreigners use to buy U.S. financial assets

U.S. is a global creditor (lender) U.S. is a global debtor (borrower)

Example: 1981: +$5.0 billion Example: 1997: -$155.2 billion

X-M = 0	X-M > 0	X-M <0
Balanced currrent account	Current account surplus	Current account deficit
	Result: money for the U.S. to use to buy foreign assets	Result: money foreigners use to buy U.S. financial assets
	U.S. is a global creditor (lender)	U.S. is a global debtor (borrower)
	Example: 1981: +$5.0 billion	Example: 1997: -$155.2 billion