Answer to Question #63771 in Macroeconomics for extrra

Question

Why cant we use balance of payment in real terms like the amount of goods traded between countries? This would be similar to how aggregate demand is in real terms

Answer 1

Balance of payments is the ratio between payments made economic entities of the one country with the other country, and revenues which derived by them from other countries for a certain period of time (quarter, year). The nature of the balance of payments include two sections: current account balance; balance of capital and financial transactions. Currently is the operation of goods, services, income and current transfers. That`s why we can`t use balance of payment in real terms like the amount of goods traded between countries, because the amount of goods traded between countries is only the part of balance of payment and the amount of goods doesn`t comprise fully of balance of payment.