How Does the Balance of Payments Differ from the Balance

question 21

Multiple Choice

How does the balance of payments differ from the balance of trade?

• A) The two concepts should yield the same value, because the value of goods traded must equal the total payments made to buy those goods.
• B) The balance of payments includes the balance of trade, but it also includes other financial flows, such as foreign borrowing and lending.
• C) The balance of trade includes exports and imports only of goods, while the balance of payments includes exports and imports of both goods and services.
• D) These two concepts are totally unrelated, so comparing them is not really meaningful.

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Definitions:

Indifference Curves

Graphical representations used in microeconomics to show different combinations of two goods that provide the same level of utility or satisfaction to an individual.

Contract Curve

In economics, the locus of points representing the set of mutually beneficial (Pareto optimal) allocations of goods or resources between two or more individuals.

Individuals

Persons or entities regarded as single and distinct from a group, often considered in terms of legal rights, responsibilities, and social roles.

Edgeworth Box

A diagram used in economics to show the distribution of resources and the potential for gains from trade between two individuals or entities.