1 2 factor income the difference between the receipts

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2. Factor income – the difference between the receipts of interest and dividends on foreign investments by U.S. investors and the payment of interest and dividends on U.S. investments to foreigners. 3. Unilateral Transfer payments – aid, grants, gifts, etc. from one country to others. The current account balance can be derived as the difference between total U.S. exports and income receipts and U.S. imports and income payments with an adjustment for net transfer payments. A summary of the U.S. Balance of Payments for 2007 (in $ billions) Credits Debits Current Account (1) Exports 2460 (1.1) Merchandise 1150 (1.2) Services 500 (1.3) Factor income 810 (2) Imports -3080 (2.1) Merchandise -1970 (2.2) Services -380 (2.3) Factor income -730 (3) Unilateral transfer (net) -110 Balance on current account -730 [(1) + (2) + (3)] Capital Account (4) Direct investment 240 -330 (5) Portfolio investment 1180 -290 (6) Other investment 640 -670 2
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Balance on financial account 770 [(4) + (5) + (6)] (7) Statistical discrepancies -45 Overall balance -5 Official Reserve Account 5 Q: What is the US’s balance of trade? Q: What is the US’s trade balance? There are 3 key components of the capital account. 1. Direct foreign investment—investment in fixed assets (e.g., manufacturing plant) 2. Portfolio investment – investment in stocks and bonds that do not transfer control 3. Other capital investment—investment in currency, money market securities, bank deposits, etc. International Trade Flows – how heavily dependent on international business is the U.S. economy? The volume of U.S. international trade of goods and services is roughly 10% of its Gross Domestic Product. That is fairly small relative to Canada, which comes in at over 50%. U.S. Balance of Trade Trend Since 1976, the U.S. has run a balance of trade deficit. Since 1982, the U.S. has run current account deficits (and capital account surpluses). Insight: “Since the U.S. imports more than it exports, it is necessary for the U.S. to import capital from foreign countries to finance its current account deficits.” Trade Agreements Common among trading partners and can pertain to one or more of the following 1.
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