Balance of Payments

Paper Summary:

This paper presents a brief explanation of what a country's balance of payments is and the main elements of the balance of payments. The paper discusses the links between a country's balance of payments and its rate of economic growth, as well as the links between a country's balance of payments and the exchange rate of its currency. The paper analyzes the main reasons for the United States' balance of payments deficits over the past five years and examines the effects of these deficits upon the economy.

From the Paper:

"Currently, the U.S. in 2004 maintains a deficit in merchandise trade and the absence of strong net investment income inflows, a current account deficit. This has occurred for some time, but before these deficits were of not much concern, as they were theoretically and comfortably offset by the current account surpluses, such as the purchase of U.S. assets by foreign individuals and institutions. The result was such that net flow of receipts and payments was in balance, allowing for statistical discrepancy, without the need to any type of official transfers. (Ruby, 1999) But concern in light of the continuation of this state of affairs, combined with a weakened U.S. dollar has grown and the widening deficit reveals US continued and more sustained reliance on foreign cash than previously thought. (J Hughes, Financial Times, 15 September 2004) "

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