CONTEMPORARY ECONOMICS 5/7/2018 18.3 Balance of Payments Objectives Describe the components of a nation’s current account. Describe the components of a nation’s financial account. LESSON 18.3

18.3 Balance of Payments Key Terms balance of payments current account merchandise trade balance trade surplus trade deficit financial account

18.3 Balance of Payments 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

The Merchandise Trade Balance 18.3 Balance of Payments 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

U.S. Merchandise Imports and Exports Relative to GDP Since 1960 18.3 Balance of Payments U.S. Merchandise Imports and Exports Relative to GDP Since 1960 Figure 18.3

U.S. Trade Deficit in 2005 by Country or Region 18.3 Balance of Payments U.S. Trade Deficit in 2005 by Country or Region Figure 18.4

The Balance on Goods and Services 18.3 Balance of Payments 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.

18.3 Balance of Payments 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.

18.3 Balance of Payments 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