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VARIABLE: A quantity, usually represented as a symbol, that can take on one of a set of values. Variables play a key role in the scientific method and economic analysis. A major task undertaken by the study of economics is to identify the specific value of variables such as price, quantity, unemployment, production, wages, income, among a host of others. This often accomplished using assorted models, such as the market model.

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BALANCE ON SERVICES:

A subset of the balance of payments current account that records the difference between the payments received for exports of services to other nations and the payments made for the imports of services from other nations. The flow of payments is for intangible services, not for physical or tangible goods. The balance on services is thus appropriately divided into services exported and services imported. Two other subsets of the current account include the balance on merchandise trade and unilateral transfers. The commonly termed balance of trade is the sum of the balance on merchandise trade and the balance on services.
The balance on services is one part of the current account of the balance of payments. It tracks payments for the exchange of intangible services, including those classified as export from the domestic economy to the foreign sector and those classified as imports from the foreign sector to the domestic economy.

Services include productive activites that provide for the direct satisfaction without the production of tangible goods. Education, entertainment, medical care, and legal advice are all examples of services.

In contrast to the international trading of tangible goods, which typically requires transportation of the actual product, trading of intangible services usually involves consumption by vistors from other countries. For example, education services are exported when a foreign citizen attends classes at a domestic university. Alternatively, tourism services are imported when a domestic citizen spends a few days at a theme park in another country.

This part of the current account is also a part of the balance of trade. The balance of trade includes both the balance on services and the balance on merchandise trade and is officially termed the balance on goods and services in the balance of payments account. The third part of the current account is unilateral transfers. In addition to the current account, the balance of payments also includes the capital account, which tracks the flow of investment payments in to and out of a country.

Balance of Payments for Northwest Queoldiola

Balance on Services
Balance on Services

To illustrate the balance on services, consider the Republic of Northwest Queoldiola, a hypothetical country that is well suited for this task. Other real world countries, such as the United States, Brazil, or Lichenstein, have similar accounts (albeit with different numbers).

The chart to the right presents the hypothetical balance of payments for Northwest Queoldiola stated in terms of queolds, the hypothetical Queoldiolan currency. The balance of payments for real world countries is generally stated in terms of their domestic currencies (such as dollars for the United States or reals for Brazil).

First note that this chart contains two major sections, Current Account and Capital Account. Near the bottom of the chart is a summary Balance of the Current and Capital Accounts, which combines the two sections. At the very bottom is the overall Balance of Payments.

Highlighting the Balance on Services

The first task is to highlight the current account portion of the Northwest Queoldiola balance of payments chart. This can be done by clicking the [Current Account] button. The current account is a record of all trade between one nation and other nations. It includes payments for imports and exports of both goods and services. It also includes monetary gifts or transfer payments to and from other nations. This account is divided into three categories -- balance on merchandise trade, balance on services, and unilateral transfers.

Key to this present discussion are payments for the exporting and importing of intangible services. The subset of the current account that tracks these flows can be highlighted with a click of the [Ser Bal] button. Note that this click highlights three lines in the balance of payments chart -- services exported, services imported, and balance on services.

  • Services Exported: The first line summarizes payments received by Northwest Queoldiola for exporting intangible services to other countries, a value of 25.3 million queolds. This is a positive value because currency, queolds, is flowing in to the domestic Queoldiolan economy. Goods flow out and money flows in.

  • Services Imported: The second line then summarizes payments paid out by Northwest Queoldiola for importing intangible services from countries, a value of -82.6 million queolds. This is a negative value because currency, queolds, is flowing out of the domestic Queoldiolan economy. Goods flow in and money flows out.

  • Balance on Services: The third and last highlighted line is the summary balance on services. It is the sum of the 25.3 million queolds received for services exported and the -82.6 million queolds paid out for services imported, a net value of -57.3 million queolds. Some currency flows in and some flows out. For Northwest Queoldiola more is flowing out that is flowing in. This deficit of exports versus imports is just the thing that contributes to a balance of trade deficit. A positive value, in contrast, would contribute to a balance of trade surplus.

The Rest of the Current Account

The two remaining parts of the current account track the flow of payments for tangible goods and unilateral transfers.
  • Balance on Merchandise Trade: This is the difference between the payments received for exports of merchandise trade to other nations and the payments made for the imports of merchandise trade from other nations. This includes only tangible goods. Once again a summary balance is provided for merchandise trade, which for Northwest Queoldiola is positive, meaning that it exports more goods than it imports.

  • Unilateral Transfers: This is the difference between gifts or transfers received from other nations and transfers sent to other nations. In includes gifts or transfers between individuals, and perhaps more important, it includes transfers between governments. For Northwest Queoldiola transfers are positive because it receives more gifts from other countries than it gives out.

The Balance of Trade

The balance of services is a part of the balance of trade. The balance of trade is specifically identified as the sum of the balance on services and the balance on merchandise trade, which is technically termed the balance on goods and services.

For the hypothetical Northwest Queoldiola, this value happens to be a positive 70.5 million queolds. This is composed of -57.3 million queolds from the balance on services and 127.8 million queolds from the balance on merchandise trade. Even though services imported exceeds services exported, this service balance deficit is outweighed by the merchandise trade balance surplus for a overall balance of trade surplus.

<= BALANCE ON MERCHANDISE TRADEBALANCED-BUDGET MULTIPLIER =>


Recommended Citation:

BALANCE ON SERVICES, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2017. [Accessed: October 21, 2017].


Check Out These Related Terms...

     | balance of payments | current account, balance of payments | capital account, balance of payments | balance on merchandise trade | unilateral transfers | balance of trade | balance of trade surplus | balance of trade deficit |


Or For A Little Background...

     | international finance | international trade | international economics | foreign trade | money | currency | open economy | closed economy | foreign sector | domestic sector |


And For Further Study...

     | foreign exchange market | international market | free trade areas | trade barriers | foreign exchange | exchange rate | flexible exchange rate | fixed exchange rate | managed flexible exchange rate |


Related Websites (Will Open in New Window)...

     | Federal Reserve System | World Trade Organization | North American Free Trade Agreement | General Agreement on Tariffs and Trade | European Union | International Monetary Fund |


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