The closing case provides two divergent views as to how the U S BOP should be interpreted One perspective looks at the last decades BOP favorably, while the other perspective does not Key Points Over the last decade, the U S BOP has reflected a large annual deficit in the current account, a large annual surplus in the capital account, and relatively small changes in the official reserves account This BOP can be interpreted in two ways First, that U S firms are uncompetitive in foreign markets, and foreigners are taking over the country by buying up valuable U S assets Second, that the United States is attracting foreign investment through foreign country current account surpluses Both views are consistent with the data Those who favor the first argument believe that the United States must reduce its BOP deficit by following policies to make U S firms more competitive in foreign markets and by following policies to keep imported goods out People who believe the second argument is true feel that the country should strive to do anything possible to become more attractive to foreign investors It is important for companies to understand BOP statistics because they are the key to the type of international trade policy the United States will pursue Case Questions 7 21 What is more important to the U S economy exports or foreign capital inflows 7 22 What is the connection between the U S current account deficit and capital account surplus 7 23 Which of the following groups is likely to endorse the sky is falling view of the U S BOP Import threatened firms such as textile producers Textile workers A cash starved California biotechnology company Merrill Lynch Boeing Aircraft, one of the countrys largest exporters Consumers

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The closing case provides two divergent views as to how the U.S. BOP should be interpreted. One perspective looks at the last decades BOP favorably,

The closing case provides two divergent views as to how the U.S. BOP should be interpreted. One perspective looks at the last decades BOP favorably, while the other perspective does not.

Key Points:

Over the last decade, the U.S. BOP has reflected a large annual deficit in the current account, a large annual surplus in the capital account, and relatively small changes in the official reserves account.
This BOP can be interpreted in two ways. First, that U.S. firms are uncompetitive in foreign markets, and foreigners are taking over the country by buying up valuable U.S. assets. Second, that the United States is attracting foreign investment through foreign country current account surpluses.
Both views are consistent with the data.
Those who favor the first argument believe that the United States must reduce its BOP deficit by following policies to make U.S. firms more competitive in foreign markets and by following policies to keep imported goods out. People who believe the second argument is true feel that the country should strive to do anything possible to become more attractive to foreign investors.
It is important for companies to understand BOP statistics because they are the key to the type of international trade policy the United States will pursue.

Case Questions

7-21 What is more important to the U.S. economy exports or foreign capital inflows?

7-22 What is the connection between the U.S. current account deficit and capital account surplus?

7-23 Which of the following groups is likely to endorse the sky is falling view of the U.S. BOP?