Answer to Question #66059 in Microeconomics for Tara

Question #66059
One of the more important measures in regard to international economics is the balance of payments. Think of it as a national accounting measure that looks at the flow of goods and services into and out of an economy in a given period of time. It also shows capital flows into and out of a country. Until 1980, the United States tended to run a positive-to-neutral balance of payments position and was a creditor nation. In the course of the past 30 years, the United States has moved to a negative balance of payments and to being a debtor nation.

Review and discuss the following:

Discuss the importance of the balance of payments as an accounting measure.
Discuss the current account and its components and the capital and financial accounts and their components.
How important is the U.S. deficit in traded goods in regard to the balance of payments?
Expert's answer
The balance of payments is the record of all economic transactions between the residents of the country and the rest of the world in a particular period. These transactions are made by individuals, firms and government bodies. Thus the balance of payments includes all external visible and non-visible transactions of a country. First, the balance of payments provides detailed information concerning the demand and supply of a country's currency. Second, a country's balance-of-payment data may signal its potential as a business partner for the rest of the world. Third, balance-of-payments data can be used to evaluate the performance of the country in international economic competition.

The current account shows the net amount a country is earning if it is in surplus, or spending if it is in deficit. The capital account records the net change in ownership of foreign assets.
If the United States imports more than it exports, then this means that the supply of dollars is likely to exceed the demand in the foreign exchanging market, ceteris paribus.

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