Question

identify the different categories that are included when the balance of payments is calculated

Answer 1

The balance of payments has three components. They are the current account, the financial account, and the capital account.

The current account measures international trade, net income on investments, and direct payments. The current account is a country's trade balance plus net income and direct payments. The trade balance is a country's imports and exports of goods and services. The current account also measures international transfers of capital. Current account = change in net foreign assets. If an economy is running a current account deficit, it is absorbing (absorption = domestic consumption + investment + government spending) more than that it is producing.

The financial account describes the change in international ownership of assets. In macroeconomics, a financial account is a component of a country's balance of payments that covers claims on or liabilities to nonresidents, specifically with regard to financial assets. Financial account components include direct investment, portfolio investment and reserve assets broken down by sector. A negative capital account balance indicates a predominant money flow outbound from a country to other countries. The implication of a negative capital account balance is that ownership of assets in foreign countries is increasing. Foreign direct investment refers to direct capital investments in a foreign country.

capital account: In macroeconomics and international finance, the capital account is one of two primary components of the balance of payments, the other being the current account. Whereas the current account reflects a nation's net income, the capital account reflects net change in ownership of national assets. Capital. Also known as net assets or equity, capital refers to what is left to the owners after all liabilities are settled. Simply stated, capital is equal to total assets minus total liabilities.

The capital account is part of a country's balance of payments. It measures financial transactions that affect a country's future income, production, or savings. An example is a foreigner's purchase of a U.S. copyright to a song, book, or film.