EECS 1520 Lecture 13: EECS 1520 Lecture 13 Notes
21 Jun 2018
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EECS 1520 Lecture 13 Notes
Introduction
Factor Income Payments
The value of U.S. service exports usually exceeds the value of U.S. service imports.
However, the value of U.S. merchandise exports is typically much smaller than the value
of U.S. merchandise imports.
Overall, the United States normally has a negative balance of trade.
A second component of the current account is factor income, which represents income
(interest and dividend payments) received by investors on foreign investments in
financial assets (securities).
Thus, factor income received by U.S. investors reflects an inflow of funds into the United
States.
Factor income paid by U.S. securities reflects an outflow of funds from the United
States.
Transfer Payments
The third main component of the current account is transfer payments, which represent
aid, grants, and gifts from one country to another.
Examples of Payment Entries
Exhibit 2.1 shows several examples of transactions that would be reflected in the
current account.
Every transaction generating a U.S. cash inflow (exports and income receipts by the
United States) represents a credit to the current account and that every transaction
generating a U.S. cash outflow (imports and income payments from the United States)
represents a debit to the current account.
Therefore, a large current account deficit indicates that the United States is sending
more cash abroad to buy goods and services or to pay income than it is receiving for its
sales of goods and services.
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Document Summary
The value of u. s. service exports usually exceeds the value of u. s. service imports. However, the value of u. s. merchandise exports is typically much smaller than the value of u. s. merchandise imports. Factor income paid by u. s. securities reflects an outflow of funds from the united. Exhibit 2. 1 shows several examples of transactions that would be reflected in the current account. Therefore, a large current account deficit indicates that the united states is sending more cash abroad to buy goods and services or to pay income than it is receiving for its sales of goods and services. The value of u. s. merchandise exports is typically much smaller than the value of u. s. merchandise imports. Overall, the united states normally has a negative balance of trade. A second component of the current account is factor income, which represents income (interest and dividend payments) received by investors on foreign investments in financial assets (securities).
