ABSTRACT
This chapter examines how international trade is financed and the structure of the balance of payments with respect to the international flows of good, services, capital, and other payments made between the United States and the rest of the world. Although much of the analysis in Chapter 16 and at the beginning of this book is couched in real terms, that is, the production and exchange of physical good and services, in fact transactions take place in an economy based on money. For the United States, currency denominated in dollars is the unit of accounting for goods, services, capital, and other payments in the economy. Expanding the scope of economic activity to a global context necessarily adds the considerations of country-specific economic activity, currency, and economic policy. Consequently, it is not surprising that essential tools of economic theory are brought to bear in the context of international finance.
