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Balance of Payments – Concept
The Balance of Payments captures all the monetary transactions occuring between people of one country and the “Rest-of-the-world”. This includes all transactions by households, firms, the central bank, and governments. In the above diagram, we can see how some items are aggregated to form summary total items.
The green items represent transactions where money is being paid by foreigners to the U.S. (“credits”). These are in-flows of money.
The red items represent transactions where money is paid by people in the U.S. to foreigners – it’s money leaving the U.S., or out-flows.