164 ❯ Step 4. Review the Knowledge You Need to Score High
the difference of four million bushels. If the world price rises to $12, there exists a four-
million bushel surplus in the U.S. market and the United States exports this surplus.
So, to reiterate:
• If the world price of a good is above the domestic price, the nation becomes an exporter
of that good.
• If the world price of a good is below the domestic price, the nation becomes an importer
of that good.12.2 Balance of Payments
Main Topic: Balance of Payments Accounts
If Japanese citizens wish to purchase U.S. soybeans, the Japanese must pay in dollars. If
U.S. citizens wish to buy Spanish olives, the Americans must pay in euros. Before goods
can be exchanged between foreign trading partners, the currency of the importing nation
must first be converted to the currency of the exporting nation.Balance of Payments Accounts
When American citizens and firms exchange goods and services with foreign consumers
and firms, payments are sent back and forth through major banks around the world. The
Bureau of Economic Analysis tracks the flow of goods and currency in the balance of pay-
ments statement. This statement summarizes the payments received by the United States
from foreign countries and the payments sent by the United States to foreign countries.
Table 12.2 summarizes the main components of a hypothetical balance of trade for 2005.Current Account
The current account shows current import and export payments of both goods and services.
It also reflects investment income sent to foreign investors and investment income received
by U.S. citizens who invest abroad. For example, if a Canadian is receiving dividends from
an American corporation or interest from a U.S. Treasury bill, these dollars would be sent
out of the country. After accounting for all of the payments sent to foreign countries and
payments received from foreign countries, the balance on the current account in 2005 was
–$26. A deficit balance such as this tells us that the United States sent more American dol-
lars abroad than foreign currency received in current transactions.Figure 12.4U.S. Soybean
Market (million
bushels)Price $8Sd104 612Dd
8shortagesurplusTIP