Net Exports and International Finance

KEY TAKEAWAYS

• The balance of payments shows spending flowing into and out of a country.
• The current account is an accounting statement that includes all spending flows across a nation's border except those that represent purchases of assets. In our simplified analysis, the balance on current account equals net exports.
• A nation's balance on capital account equals rest-of-world purchases of its assets during a period less its purchases of rest-of-world assets.
• Provided that the market for a nation's currency is in equilibrium, the balance on current account equals the negative of the balance on capital account.
• There is no economic justification for viewing any particular current account balance as a good or bad thing.