AP Macroeconomics AMSCO Guided Notes
6.1: Balance of Payments Accounts
AP Macroeconomics Guided Notes
AMSCO 6.1 - Balance of Payments Accounts
Essential Questions
- How do balance of payments accounts measure the goods, services, and financial trade between countries?
I. Balance of Payments Accounts (BOP)
1. What is a balance of payments account and what types of transactions does it include?
2. How do the five main rows of a BOP table differ in what they measure?
A. Current Account
1. What is the current account and why are its transactions considered to have no future liabilities?
2. What is a trade balance and how does it relate to the current account?
3. Why does the United States run a large current account deficit with China?
B. Capital and Financial Account
1. What is the capital and financial account and what types of transactions does it measure?
2. How do capital and financial account transactions differ from current account transactions in terms of future obligations?
3. How are returns on investments recorded in the capital and financial account?
II. How the BOP Works
1. Why should the current account and capital financial account sum to zero according to BOP accounting principles?
2. How do the inflow and outflow of funds in the current account relate to the inflow and outflow in the capital financial account?
3. Why do economists consider BOP surpluses and deficits to be statistical errors?
Key Terms
balance of payments (BOP) account
current account (CA)
trade balance
outflow of funds
inflow of funds
capital and financial account (CFA)