1. 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

2. 18.3 Balance of Payments Key Terms balance of payments current account
merchandise trade balance
trade surplus
trade deficit
financial account

3. 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

4. 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

5. 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

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

7. 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.

8. 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.

9. 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