CHAPTER 10
THE BALANCE OF PAYMENTS
CHAPTER OVERVIEW
In this chapter, we examine the monetary aspects of international trade by considering the nature and significance of
a nation’s balance of payments. The chapter begins by discussing the concept of the balance of payments. An
overview of double-entry accounting is provided and also an identification of the major credit and debit transactions
on the balance-of-payments statement.
The chapter emphasizes the U.S. balance of payments and the U.S. balance of international indebtedness. Of
particular importance is the United States as a debtor nation and the views concerning the effects of U.S.
indebtedness.
After completing this chapter, the student should be able to:
BRIEF ANSWERS TO STUDY QUESTIONS
1. The balance of payments is a record of the monetary transactions between residents of one country and the
rest of the world that occur over the course of a one-year period.
2. The receipt of dollars from foreigners results from the following transactions: (1) merchandise exports, (2)
4. Balance-of-payments transactions are grouped into two categories: (1) the current account which refers to
5. Official reserve assets consist of gold, Special Drawing Rights, reserve positions in the International Monetary
Fund, and convertible currencies.
6. A merchandise trade surplus suggests that the home country is a net exporter of merchandise. A goods and
Instructor’s Manual
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7. If the surplus balance on the service account exceeds the deficit balance on the merchandise (goods)
account, the goods and services balance will be in surplus.
8. The balance of international indebtedness indicates the international investment position of a country at one
9. a-debit; b-credit; c-credit; d-debit; e-debit; f-debit; g-credit; h-debit; i-debit.
10. a. Merchandise trade balance, $75 billion deficit. Services balance, $60 billion surplus. Goods and
services balance, $15 billion deficit. Investment income balance, $5 billion surplus. Unilateral