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... A comprehensive record of these transactions is the balance of payment which effectively accounts the economic dealings between the residents of a country with the rest of the world during a given period of time. The aim of the record is to maintain a regular diary of all the receipts and payments on account of goods exported and imported; services rendered and received; and capital received and transferred by the residents of the country. The balance of payment is based on the double entry book-keeping and every receipt of currency from the residents of the rest of the world is recorded as credit item where as each payment to residents of the rest of the world is
recorded as debit.
The balance of payment is basically made up of the current account and the capital account (Refer to Table. ... The Current Account includes imports and exports (visible trade balance); and also revenues from and payments for transportation, insurance, interest, etc. (invisible trade balance). The invisible income also includes unilateral payments. ...
Balance of Payment Surplus
The balance of payment is always in balance as every credit item has a debit in the balance of payment record. ... So when there is surplus or a deficit it is actually a subset of items in the balance of payment that are in surplus or deficit. A balance of payment surplus occurs when the autonomous receipts are greater than the autonomous payments (where autonomous items are transactions that take place independently of the balance of payments). ... The balance of payment surplus can be offset by an expansionary monetary policy. ... The lower interest rates leads to increased capital outflows so that the balance of payment moves out of the surplus. ... Consequently attaining internal and external balance. ... The definite effect of the fiscal expansion on the balance of payments is intermediate because while the expansion of out will worsen the current account the rise in interest rates will improve the capital account. ...
The combination of an expansionary monetary policy with a contractionary fiscal policy would help in attaining an internal and external balance.
Other Measures
Taking into account that greater export receipts as compared to the import payments might have caused an imbalance, the tariffs and quota laws could possibly be relaxed to an extent. ... Between 1949 and 1951 Canada experienced a balance-of-payments surplus of a great magnitude. ... The current account balance was however negative in the first three-quarters of 1959. ... By the time the last of these controls were abolished in December 1951, the Canadian balance of payments was healthier and more stable than ever in the post-war period.
Approximate Word count = 2059
Approximate Pages = 8.2
(250 words per page double spaced)
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