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by central banks. 2.) reflects surplus/deficit of a.) current account b.) capital account 9 BALANCEOFPAYMENT CATEGORIES 6. Official Reserves Account (con’t) b. Reserves consist of 1.) gold 2.) convertible securities 10 BALANCEOFPAYMENT CATEGORIES 7. Net Effects: a. Sum of all transactions must be zero: 1.) current account 2.) capital account 3.) official reserves 11 BALANCEOFPAYMENT CATEGORIES 8. The Balanceofpayment measures a. Some Definitions: 1.) Basic Balance a.) consists of current account and long term capital flows. 12 BALANCEOFPAYMENT CATEGORIES 1.) Basic Balance (con’t) b.) emphasizes long term trends. 13 BALANCEOFPAYMENT CATEGORIES 1.) Basic Balance (con’t) c.) excludes shortterm capital flows that heavily depend on temporary factors. 14 BALANCEOFPAYMENT CATEGORIES 2.) Net Liquidity Balance: measures the change in private domestic borrowing or lending require to keep payments equal without adjusting official reserves. 15 BALANCEOFPAYMENT CATEGORIES 3.) Official Reserve Transactions Balance measures adjustments needed by official reserves. 16 PART II. THE INTERNATIONAL FLOW OF GOODS, SERVICES, AND CAPITAL II. LINKS FROM INTERNATIONAL TO DOMESTIC FLOWS A. Global Linkages set of basic macroeconomic identities