1. Appendix Chapter 16 The Balance of Payments Account

2. Copyright ©2015 Pearson Education, Inc. All rights reserved.16-1 Balance of Payments Account The balance-of-payments is a double- entry bookkeeping system to balance payments to/from foreigners and Americans in the U.S.

3. Copyright ©2015 Pearson Education, Inc. All rights reserved.16-2 Financial News: Balance of Payments

4. Copyright ©2015 Pearson Education, Inc. All rights reserved.16-3 Current Account Trade balance = exports (line 1) minus imports (line 2). Trade deficit when difference is negative. Surplus when positive. Next three lines show net receipts in three area: investment income, purchase/sale of services, and transfers.

5. Copyright ©2015 Pearson Education, Inc. All rights reserved.16-4 Capital Account Capital account shows flow of capital between the United States and other countries. Note line 8 “statistical discrepancy.” This is errors due to unrecorded transactions involving smuggling and other capital flows.

6. Copyright ©2015 Pearson Education, Inc. All rights reserved.16-5 Official Reserve Transactions Balance Official reserve transactions balance = the sum of lines 1 though 8. Usually when the press refers to a “surplus” or “deficit” in the balance of payments, actually referring to the official reserve transactions balance.

7. Copyright ©2015 Pearson Education, Inc. All rights reserved.16-6 Methods of Financing the Balance of Payments Most countries must finance a deficit in the balance of payments - provide international reserves to foreign governments and central banks U.S. is different since U.S. dollars are the major component of international reserves held by other countries. Just adjust reserve balance.