In HSC Economics, the Balance of Payments is a record of all incoming and outgoing trade and financial transactions made between an economy and the rest of the world. It uses double-entry accounting, i.e. debits and credits.
What is the Balance of Payments?
Watch the videos below to learn more about its function in the economy.Â
The balance of payments is a record of a country’s economic transactions with the rest of the world over a given period of time. The current account, a component of the balance of payments, measures a country’s trade in goods and services, income from investments abroad, and transfers.
The structure of the current account provides insight into a country’s trade competitiveness and its ability to pay for imports through its exports, investment income, and other sources of revenue.
What is the Current Account?
In this video, we will learn more about one of the two parts that make up the balance of payments, the Current Account and the Capital and Financial Account.
A current account surplus indicates that a country is earning more from its exports, investment income, and other sources of revenue than it is spending on imports, and is seen as a positive sign for the economy. Conversely, a current account deficit suggests that a country is spending more on imports than it is earning from exports and other sources of revenue, which can put pressure on its foreign exchange reserves and increase its dependence on foreign capital.
In summary, the structure of the current account in the balance of payments provides a comprehensive picture of a country’s trade and financial dealings with the rest of the world, and helps in understanding its economic health and prospects.
What is the Balance of Goods and Services?
Watch the video to find out more about the Balance of Goods and Services (BOGS).Â
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