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Chapter 10: Problem 1

What is meant by the balance-of-payments?

Short Answer

Expert verified
The balance-of-payments is a comprehensive record of a country’s fiscal transactions, including the imports and exports of goods, services, and capital, as well as financial transfers. It is divided into three categories: the current account, the capital account, and the financial account, used to define the economic, investment, trade relationships a country has with the rest of the world.

Step by step solution

01

Define the Term

Balance of payments is a comprehensive record of a country’s fiscal transactions, including the imports and exports of goods, services, and capital, as well as financial transfers. It is used to summarize all international economic transactions for that country during a specific time period.
02

Explain its Components

The balance of payments is typically divided into three categories: the current account (which includes goods and services into and out of the country), the capital account (which includes capital transfers and purchasing of fixed assets), and the financial account (which includes investments into and out of the country).
03

Describe its Purpose

This measurement is used to define the economic, investment, trade relationships a country has with the rest of the world. Economists and policymakers use it to help formulate countries' economic policy.

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Most popular questions from this chapter

What does the balance of international indebtedness measure? How does this statement differ from the balance-of-payments?

Why does the balance-of-payments statement "balance"?

What is the meaning of a surplus (deficit) on the (a) merchandise trade balance, (b) goods and services balance, and (c) current account balance?

Indicate whether each of the following items represents a debit or a credit on the U.S. balance-of-payments: a. A U.S. importer purchases a shipload of French wine. b. A Japanese automobile firm builds an assembly plant in Kentucky. c. A British manufacturer exports machinery to Taiwan on a U.S. vessel. d. A U.S. college student spends a year studying in Switzerland. e. American charities donate food to people in drought-plagued Africa. f. Japanese investors collect interest income on their holdings of U.S. government securities. g. A German resident sends money to her relatives in the United States. h. Lloyds of London sells an insurance policy to a U.S. business firm. i. A Swiss resident receives dividends on her IBM stock.

What economic transactions give rise to the receipt of dollars from foreigners? What transactions give rise to payments to foreigners?
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