Two International Accounts Mod 42 1 Trade Balance –

two international accounts mod. 42 1. trade balance – exports minus imports 2. balance of payments – funds flowing in and out of a country

Two international accounts Mod. 42
1. Trade Balance – Exports minus imports
2. Balance of Payments – funds flowing in and out of a country
Essential Question:
How can the United States continually run a trade (Current Account)
deficit?
CURRENT ACCOUNT (think, will it be used up now or currently?) Trade
Balance + +
Table 1. US international Transactions
Exporting goods and services +$1,446 billion (2007) inflow
Importing goods and services -$ 2,204 billion (2007) outflow
Dividends, Interest, rent received from foreign sources +650 inflow
Dividends, Interest, rent to foreign owners - 613 outflow
Transfers (Red Cross, Soc. Sec., gov. grants/pensions) - 89 billion 07
outflow
CURRENT ACCOUT BALANCE - 707 billion 07 outflow
FINANCIAL ACCOUNT old name CAPITAL ACCOUNT
(hmmm, things that will last)
Purchases by foreigners of US stocks, bonds, real estate,
buying or building factories in US +1,860 billion inflow
Purchases by US entities of foreign stocks, bonds,
real estate, buying or building factories outside US – 1,055 billion
outflow
Official reserve account
( Central banks exchanging currencies) + 2.4 billion 07 inflow
F INANCIAL ACCOUNT BALANCE + 707 billion 07 inflow
(Capital Account Balance, old name)
SUM OF CURRENT AND FINANCIAL BALANCES $ 0
(-707) + (+707) = 0
Foreign Accounts Balance is ZERO - International Accounts balance is
zero
The Balance of Payments must Balance –
outflows must equal inflows
Name: ________________________________________________Date:
______________Class: _____
AP Macroeconomics
The Balance of Payments
Directions: For each of the following, determine if it represents a
credit (+) or debit(-) to the balance of payments and whether it is a
current account or financial account transaction.
Scenario
Credit or Debit?
Current or Financial Account
1.
Bob purchases $50,000 worth of common stock in Korean manufacturer
Hyundai.
2.
A buyer for Macy’s purchases $1 million dollars worth lamb’s wool
sweaters from a New Zealand textile firm.
3.
Toyota builds a factory in San Antonio, Texas.
4.
The Lorax, an American, purchases a Japanese made Toyota Prius.
5.
Boeing sells a new 787 to Emirates Air.
6.
An ARAMCO employee working in Saudi Arabia sends most of his paycheck
home to his wife in Houston.
7.
Americans donate $25 million in Tsunami relief to Thai relief
organizations.
8.
The Federal Reserve acquires excess foreign currency.
9.
The Federal Reserve reduces its holdings of foreign currency.
10.
Chinese banks purchase United States Treasury Bonds.