Measuring Trade Balances

Self-Check Questions

If foreign investors buy more U.S. stocks and bonds, how would that show up in the current account balance?

Hint:

The stock and bond values will not show up in the current account. However, the dividends from the stocks and the interest from the bonds show up as an import to income in the current account.

If the trade deficit of the United States increases, how is the current account balance affected?

Hint:

It becomes more negative as imports, which are a negative to the current account, are growing faster than exports, which are a positive.

State whether each of the following events involves a financial flow to the Mexican economy or a financial flow out of the Mexican economy:

  1. Mexico imports services from Japan
  2. Mexico exports goods to Canada
  3. U.S. investors receive a return from past financial investments in Mexico

Hint:

  1. Money flows out of the Mexican economy.
  2. Money flows into the Mexican economy.
  3. Money flows out of the Mexican economy.