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Unformatted text preview: Chapter 2: Balance of Payments 2.1 Introduction to Balance of Payments Accounting The balance of payments (BOP) is a statement of all of the international transactions of a country over a certain period of time. An example of such a statement appears as Table 2.1 beginning on the next page, where BOP information for the United States over the period 2000-2009 is presented. At first glance the table may look quite complicated. In fact, once you know the rules and 1 some definitions, it's relatively simple to understand. First, let's consider all of the possible international transactions citizens (including corporations and governments) of a country might undertake. Basically, there are four. Domestic residents can buy (or sell) goods, services, or financial assets from (to) foreigners. Also, they can send (or receive) gifts to (from) foreigners. Thus, the table provides some detail on each of these four types of activities. For instance, the first line shows the value of U.S. exports of merchandise goods for each year between 2000 and 2009. These values are measured in billions of U.S. dollars. The 2 next line presents information on U.S. imports. Note that the dollar amounts beside this item has minus[-] signs. What is the meaning of this? To answer that, we must turn to the language of double- entry bookkeeping. The BOP accounts are maintained according to rules of double-entry bookkeeping. Every economic transaction has two sides. For instance, when you buy a newspaper, you give up money (that's one side of the transaction) and receive a newspaper (that's the other). In principle, double The source for this table is the International Financial Statistics (IFS) published by the International Monetary 1 Fund. These (and many other) data are available online for Pitt students in the ULS digital library . More detailed information on the United States BOP can be found at the Department of Commerces Bureau of Economic Analysis data base . The letters F.O.B. stand for free on board . This means that monetary values of the goods in question are based 2 on their values prior to shipment. That is, the values of goods do not include the cost of shipping them to their final destination. Table 2.1 U.S. Balance of Payments (In $ billions) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1 GOODS EXPORTS: F.O.B. 774.63 721.84 685.93 716.71 811.03 898.46 1026.85 1152.57 1295.39 1072.93 2 GOODS IMPORTS: F.O.B.-1224.42-1145.93-1164.74-1260.75-1472.96-1681.81-1861.41-1967.87-2112.23-1576.51 3 TRADE BALANCE-449.78-424.08-478.81-544.04-661.93-783.35-834.55-815.30-816.84-503.58 4 SERVICES: CREDIT 285.30 291.34 305.86 340.42 375.79 385.30 430.16 493.16 540.40 497.87 5 SERVICES: DEBIT-223.94-233.72-256.63-296.07-321.55-313.51-348.89-378.11-404.69-369.2 6 BALANCE ON GOODS AND SERVICES-388.429-366.458-429.577-499.697-607.685-711.56-753.28-700.26-681.13-374.91 7 INCOME: CREDIT 350.92 288.30 270.79 309.83 379.53 535.26 685.15 817.78 755.47 588.20 8 INCOME: DEBIT-329.86-329....
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- Spring '11