The U.S.A Economy and Balance of Payments

Paper Summary:

The Balance of Payments (BOP) is the method that countries use to monitor all international monetary transactions at a specific period of time. The paper analyzes the current balance of payments adjustments made by the U.S.A. It describes the reasons for the adjustments and discusses the type of adjustment used by the American government.

From the Paper:

"It was once believed that a nations stock of international reserves was adequate to cover a nation's deficit, but history has shown that results are slow. The incentive for a nation to reduce payments surplus are not direct and immediate like that for reducing a payments deficit. (Carbaugh) The need for adjustment because of persistent BOP disequilibrium tends to have adverse economic consequences. There are two different classifications of BOP adjustments they are either automatic or discretionary. Under a system of fixed exchange rates, automatic adjustments can occur through variations in prices, interest rates, and incomes. The demand for and supply of money can also influence the adjustment process.

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