Unit 7: The Balance of Payments
Balance of Payments Measure of money inflows and outflows between the Unites States and the Rest of the World (ROW) Inflows: are referred to as Credit Outflows are referred to as Debits The Balance of Payments is divided into 3 accounts Current account Balance of trade or Net Export Formula: Exports of Goods/Services - Imports of goods/ Services Exports create a Credit to the balance of payments imports create a Debit to the balance of payments Net Foreign Income Income earned by U.S owned foreign assets - Income paid to foreign held US assets EX. Interest payments on US owned Brazilian bonds - Interest payment on German owned US treasury bonds Net Transfers (tend to be unilateral) Foreign Aid→ a Debit to the current account EX. Mexican migrant workers send money to family in Mexico Capital/ Financial account The balance of capital ownership Includes the purchase of both real and financial assets Direct investment in the ...