Balance of Payments – The Memoranda Items

• Next let’s re-name some items using terms that might be more familiar. I’ve added the more common names in blue italic font.

• You should be able to see the relationships to thecircular flow of goods, services, and payments now.

• The current account represents “net exports” or (X-M).

• The capital account represents the net of capital inflows and outflows.

• Capital account must equal current account, so:

• Capital Inflows- Outflows = X-M