Jim Whitney Economics 311

Monday, February 27, 2012
 

Key investment concepts

    (1) real investment versus financial investment

        real investment (= I in national income accounting)
        = spending on plant and equipment 
        --> Demand for credit

        financial investment (= S in national income accounting)
        = using your savings (S) to buy stock, make loans
        foreign investment = a type of financial investment
        --> Supply of credit
 
    (2) gross versus net foreign investment (NFI)

        gross = total foreign financial investment 
        (Ex: total US investments abroad)

        net foreign investment (NFI) 
        (Ex: US investments abroad - foreign investments in the US)
        NFI tells us whether a country is a debtor or creditor nation on balance
        (reported as "net international investment position")

 

    Gross vs. Net FI
  US International transactions: 2008 (Source: http://www.bea.gov/international/xls/table1.xls)
  Current account

$billion

  

International Investments

$billion

1

 Exports of goods and services $1,826.6  

Increase in US-owned assets abroad

 $29.0
2 Imports of goods and services -2,522.5   Minus: Increase in foreign-owned assets in the US 735.1
3

NX in GDP

-695.9   Net foreign investments -706.1
4 Factor income:        
5 Income receipts from US-owned assets abroad 766.6      
6 Income payments on foreign-owned assets in the US -646.4      
6

Net factor income

118.2      
7

NX in GNP

 -577.7      
8 Unilateral transfers, net -128.4      
9

Current Account Balance

 -706.1