When comparing a nation's balance of trade with its balance of payments,which statement is true?
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.

Question

Quizplus · Accepted Answer

The balance of payments includes the balance of trade, but it also includes other financial flows such as foreign borrowing and lending. Therefore, these two concepts are not equivalent, and it is important to consider both when analyzing a country's economic activity. Choice A is incorrect because the balance of trade only considers the value of goods traded, while the balance of payments is a more comprehensive measure. Choice C is partially correct, but it fails to mention that the balance of payments also includes financial flows. Choice D is incorrect because while the two concepts are not equivalent, they are related, and comparing them can provide insights into a country's economic position.

When Comparing a Nation's Balance of Trade with Its Balance