Details of the Balance of Payments

Balance on Current Account.

The totality of items under section J in Table .29-1 is the balance on current account, This includes all items of income and outlay-e-import and exports of goods and services, investment income. ~U1d transfer payments, The current-account balance i~akin to the net income of a nation. It is conceptually similar to net ‘exports in the national output accounts.

In the’ past, many writers concentrated on the trade balance, which consists of mere handiness imports or exports. The composition of merchandise imports and exports consists mainly of primary commodities (like food and fuels) and manufactured goods. In an earlier era, the mercantilism strove for a trade plus (an excess of exports over imports), calling this a “favorable balance of trade.” They hoped to avoid an “unfavorable trade balance,” by which they meant a trade deficit (an excess, of imports over exports).
Even today, find traces of mercantilism when many nations seek to maintain trade surpluses. Today, economists avoid this language because a trade deficit is not necessarily harmful. As we will see, the trade deficit is really a reflection of the imbalance between domestic investment and domestic saving. Often, a nation has a trade deficit because its
domestic capital is highly profitable and it is beneficial to borrow abroad to invest at home and raise domestic incomes.

Table 29-2 presents a summary of the U.S. balance of international payments for 1999. Note its two main divisions: current account and financial account . Each item is listed by name in column (a). Credits are listed in column (b), while, column (c) shows the debits. Column (d) then lists the net credits or debits; it shows a credit if on balance the item added to our  stock of foreign currencies or a debit if the total subtracted from our foreign-currency supply.

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