The balancing item, Managerial Economics

THE BALANCING ITEM

Since for ever position entry in the current and capital accounts there is a corresponding negative entry in the monetary account, and for every negative entry in the first two accounts there is a corresponding positive entry in the monetary account, it follows that the balance of payments must balance i.e. the sum of the balances of all the three accounts must add up to zero.

In practice, this is usually not the case because there are so many transactions that take place, and due to human errors some may be recorded correctly in one account but incorrect in another account with the result that the sum of the tree balances may not be zero.  The actual discrepancy in the records can be calculated.  The balancing item represents the sum of all errors and omissions.  If it is positive, it means that there have been unrecorded net exports while a negative entry means that there have been unrecorded net imports.

Posted Date: 11/30/2012 5:20:00 AM | Location : United States







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