Question

1. What are the similarities and differences between the Balance of Payments (BoP) and the national income and product accounts (NIPA)?

2. What is the breakdown of the capital Account by its main items, and what item in that account contributes to GDP?

3. What part of the BoP reflects remittances sent by immigrants to their families back home and can they be thought of as more related to our exports or our imports?

Answer 1

1. What are the similarities and differences between the Balance of Payments (BoP) and the national income and product accounts (NIPA)?

Many of the main aggregate variables used to characterize an economy are featured in the National Income and Product Accounts (NIPA) of a country. National revenue reflects the cumulative amount of money that output factors receive over the course of a year. This primarily involves wage, rent, taxes, and interest payments to employees and capital and property owners. The national product refers to the amount of production an economy produces over the course of a year. The national product, also known as national production, reflects the market value of all products and services produced by businesses in a country.

National product calculates the monetary flow that is, the monetary value of the commercial goods and services generated by companies. National revenue calculates the currency movement that is, the monetary value of all factor resources used in the production cycle. So long as the scheme leaks monetary, national income would be equivalent to national output.

The balance of payments accounts are a record of all financial transactions conducted during the year between citizens of one country and citizens of other countries. The accounts are divided into several sub-accounts, with the current account and the financial account being the most relevant. The current account is also subdivided further into the commercial sales account and the operation account

Income payments reflect the money that foreign residents receive (i.e., income) on their US investments. For example, if a British corporation owns an office building in the United States and returns a portion of the profit received there as part of its profits to the United Kingdom, then this is known as an income tax on the balance of payments current account. Income receipts reflect the money domestic residents receive on their foreign investments. For example, if a U.S. corporation operates an assembly plant in Costa Rica and returns a share of the profits gained there as part of its income to the United States, then this is known as a receipt of income

2. What is the breakdown of the capital Account by its main items, and what item in that account contributes to GDP?

Answer - Following are the items of the capital account in BOP -

1 - Investment of the domestic country done in foreign

2 - Investment of the foreign country done in domestic country

3 - Short term and long term capital inflows and outflows of assets and liabilities

Out of these , the FDI , increases the income in domestic country , contributing to the GDP.

3. What part of the BoP reflects remittances sent by immigrants to their families back home and can they be thought of as more related to our exports or our imports?

Answer - The remittances sent by the people to theri family members are recorded as the unilateral transfer in the Current account of BOP . This is because they are one sided transfers. It is not related to import or export because import or export involve two sided transfer of goods and money. Hence remitances are not related to it except the fact that all the three are recorded in the current account.