Question

How does one calculate the current account balance for an economy which has imports and exports?

Answer 1

The Balance of Payments consists in several accounts which are aggregated to organize the inflow and outflow of currency (usually measured in dollars for all economies) in that country in a period.

According to most Macroeconomics guides you may find, the Balance of Payments is structured as follows:

1. Balance of Trade (Exports minus Imports)
2. Balance of Services (all the services that might be provided internationally, such as freight or insurance)
3. Balance of Rents (salaries and rents payed for residents by non-residents and for non-residents by residents)

4. Unilateral Current Transfers (donations and monetary transfers such as someone sending money to its family)

5. Balance of Current Transactions (1+2+3+4)

6. Capital and Finance accounts (foreign investment, capital markets investments, financial assets, etc.)

7. Errors and omissions (elements that do not fit anywhere else or might have been mistakenly forgotten)

8. Balance of Payments (5+6+7)

9. Variation of Foreign Reserves (the variation in foreign currency reserves of a country, which is equal to minus the Balance of Payments)