Download 18.3 Balance of Payments

18.3 Balance of Payments
Objectives
 Describe the components of a nation’s
current account.
 Describe the components of a nation’s
financial account.
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18.3 Balance of Payments
Key Terms
 balance of payments
 current account
 merchandise trade balance
 trade surplus
 trade deficit
 financial account
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18.3 Balance of Payments
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Current Account
Balance of payments—a record of all
economic transactions between residents
of one country and residents of the rest of
the world during a given period
Current account—that portion of the
balance of payments that records exports
and imports of goods and services, net
investment income, and net transfers
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18.3 Balance of Payments
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The Merchandise Trade Balance
 Merchandise trade balance—the value of a
country’s exported goods minus the value of its
imported goods during a given period
 Trade surplus—the amount by which the value
of merchandise exports exceeds the value of
merchandise imports during a given period
 Trade deficit—the amount by which the value of
merchandise imports exceeds the value of
merchandise exports during a given period
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18.3 Balance of Payments
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U.S. Merchandise Imports and
Exports Relative to GDP Since 1960
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Figure 18.3
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18.3 Balance of Payments
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U.S. Trade Deficit in 2005
by Country or Region
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Figure 18.4
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18.3 Balance of Payments
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The Balance on
Goods and Services
 The merchandise trade balance focuses on the
flow of goods, but some services also are traded
internationally.
 Services are intangible products, such as
transportation, insurance, banking, consulting,
and tourism.
 The balance on goods and services is the value
of exports of goods and services minus the
value of imports of goods and services.
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18.3 Balance of Payments
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Unilateral Transfers
 Unilateral transfers consist of government
transfers to foreign residents, foreign aid,
personal gifts to friends and relatives abroad,
personal and institutional charitable donations,
and other transfers.
 Net unilateral transfers equal the unilateral
transfers received from abroad by U.S. residents
minus unilateral transfers sent to foreign
residents by U.S. residents.
CONTEMPORARY ECONOMICS
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18.3 Balance of Payments
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Financial Account
Financial account—that portion of the
balance of payments that records
international transactions involving
financial assets, such as stocks and
bonds, and real assets, such as factories
and office buildings
Record of the financial account
Statistical discrepancy
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