international economics lesson 4: balance of trade & balance of payments

International Economics

Lesson 4: Balance of Trade & Balance of Payments

In Your Groups

• Answer (in written form) the following questions:

• How do American producers like to be paid?

• How do French producers like to be paid?

• Do American producers generally accept Euros as payment?

• Do French producers want to sell their products (like wine and cheese) to people in other countries?

• What does the word “imports” mean?

• What does the word “exports” mean?

One More Question

When U.S. consumers buy French goods, what do the French do with our dollars?

Trade Balance With France

(Link)

Balance of Trade

Exports Minus Imports

More Vocabulary

Trade Surplus: When Exports > Imports

Trade Deficit: When Imports > Exports

Foreigners with US dollars will use those dollars to buy

American goods or invest in American companies.

Balance of Payments

Dollars entering the country minus dollars leaving the country.

The balance of payments is always zero.

Thriftville vs. Squanderville

A Class Activity

In A Land With No Banks

Thriftville vs. Squanderville• Exports:_______• Imports:_______• BOT:_______• Stock sold to foreigners

($ amount):_______• Foreign stock

purchased ($ amount):_______

• BOP:_______

• Exports:_______• Imports:_______• BOT:_______• Stock sold to foreigners

($ amount):_______• Foreign stock

purchased ($ amount):_______

• BOP:_______

Take Note• Squanderville ran a trade deficit because they imported

more than they exported, and their balance of trade was negative.

• Thriftville ran a trade surplus because they exported more than they imported, and their balance of trade was positive.

• Thriftville consumers assumed ownership of larger portions of Squanderville’s businesses.

• Thriftville is in a better long-run position, as their investments will provide them with additional income.

If the USA exports $3 billion worth of goods/services, and imports $4

billion worth of goods/services, what is our balance of trade?

• A) -$1 billion

• B) $0

• C) $1 billion

• D) $3 billion

If the USA exports $3 billion worth of goods/services, and imports $4

billion worth of goods/services, then the USA is running a

• A) trade surplus

• B) trade deficit

In 1998, what was the dollar value of goods and services purchased from China by Americans?

• A) $14 billion B) $71 billion

• C) $85 billion D) $57 billion

Top Ten Trading Partners of the United States (1998, in billions of dollars)

Country

Exports To

Imports from

Canada $160 $175 Japan $58 $122 Mexico $79 $95 China $14 $71 Germany $27 $50 United Kingdom $39 $35 Taiwan $18 $33 France $18 $24 South Korea $16 $24 Singapore $16 $18

Which of the following statements is incorrect?

• A) The U.S. ran a trade deficit with Japan of $64 billion.• B) The U.S. balance of trade with Japan was -$64 billion.• C) The U.S. ran a trade surplus with the United Kingdom

of $4 billion.• D) The U.S. balance of payments with France was -$6

billion.

Top Ten Trading Partners of the United States (1998, in billions of dollars)

Country

Exports To

Imports from

Canada $160 $175 Japan $58 $122 Mexico $79 $95 China $14 $71 Germany $27 $50 United Kingdom $39 $35 Taiwan $18 $33 France $18 $24 South Korea $16 $24 Singapore $16 $18

With which country was the U.S. running the biggest trade deficit?

• A) Canada• B) Japan• C) China• D) United Kingdom

Top Ten Trading Partners of the United States (1998, in billions of dollars)

Country

Exports To

Imports from

Canada $160 $175 Japan $58 $122 Mexico $79 $95 China $14 $71 Germany $27 $50 United Kingdom $39 $35 Taiwan $18 $33 France $18 $24 South Korea $16 $24 Singapore $16 $18