Review and discuss the following:

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Economics

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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?

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Explanation & Answer

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The balance of payments accounts for the records of the country’s payments and also the
receipts of the residents of a given country. It also involves the transaction between one country
and another. Some of the transactions covered are; service payments, exports, imports, capital
finances and financial transfers (Amadeo.K, 2017). It is expected that receipts and payments for
all states ought to be equal and whenever there is an inequality, the country is forced to start
acquiring assets from another country.
High-interest rates arise in a scenario where there are high levels of pricing hence
resulting in skyrocketing gross national input. Therefore, the deficit may arise in a state
experiencing this. When there is a deficit it does not always mean that the country has a bad
economy. Deficit might be as a result of excessive inflation or inadequate saving. It can easily
occur in the United States due to the investments being secure and investments.
A countries’ balance of payment comprises of a financial account and a current account.
The current account basically evaluates the short-term money outflows and inflows to the
economy of a par...


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