Explain the differences between credits and debits in the U.S. balance of payments and give at least two examples of a transaction of each type.
What will be an ideal response?
Credits are recorded as positive values in the U.S. balance of payments while debits are recorded as negative values. Example transactions will vary. Credits occur in the current account due to U.S. exports, i.e., when foreign buyers purchase goods or services from U.S. sellers. Two examples are a U.S. firm that sells clothing abroad and a tourist attraction in the United States that caters to foreign visitors. Transfer payments and investment income payments from abroad to the United States are also credits. Capital inflows to the United States from abroad are recorded as credits in the financial account. Debits occur in the capital account when U.S. buyers purchase goods or services from foreign sellers. Two examples are a Canadian firm that sells seafood to U.S. consumers and a Mexican hotel that caters to U.S. tourists. Transfer payments and investment income payments from the United States to foreigners are also debits. Capital outflows from the United States are recorded as debits in the financial account.
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