{"id":2828,"date":"2023-02-19T16:10:53","date_gmt":"2023-02-19T16:10:53","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/fresh-take-3-1-globalization\/"},"modified":"2023-07-20T19:51:08","modified_gmt":"2023-07-20T19:51:08","slug":"fresh-take-3-1-globalization","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/fresh-take-3-1-globalization\/","title":{"raw":"Fresh Take 3.1: Global Trade","rendered":"Fresh Take 3.1: Global Trade"},"content":{"raw":"<section class=\"textbox learningGoals\">\r\n<ul>\r\n \t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Explain what globalization is and how it is related to business&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Explain what globalization is and how it is related to business<\/span><\/li>\r\n \t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand why absolute and comparative advantage make companies want to do business in foreign markets&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand why absolute and comparative advantage make companies want to do business in foreign markets<\/span><\/li>\r\n \t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand the difference between balance of trade and balance of payments&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand the difference between balance of trade and balance of payments<\/span><\/li>\r\n \t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand the difference between trade deficits and trade surpluses&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand the difference between trade deficits and trade surpluses<\/span><\/li>\r\n<\/ul>\r\n<\/section>\r\n<h2>What Is Globalization?<\/h2>\r\n<iframe src=\"\/\/plugin.3playmedia.com\/show?mf=3704536&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=QXN_jl2abEE&amp;video_target=tpm-plugin-sj0iri5w-QXN_jl2abEE\" width=\"800px\" height=\"520px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe>\r\n\r\nYou can view the\u00a0<a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Intro+to+Business\/Transcriptions\/GlobalizationEasilyExplained_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \"Globalization easily explained\" (opens in new window)<\/a>\u00a0or the <a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Intro+to+Business\/Transcriptions\/GlobalizationEasilyExplained_alternative.txt\" target=\"_blank\" rel=\"noopener\">text alternative for \"Globalization easily explained\" (opens in new window)<\/a>.\r\n<h2>Absolute and Comparative Advantage<\/h2>\r\nThe following video provides an excellent illustration of comparative and absolute advantage and explains why they are such\u00a0important considerations in how countries decide to specialize and\u00a0trade.\r\n\r\nhttps:\/\/youtu.be\/38hvvAzgXZY\r\n\r\nYou can view the\u00a0<a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Intro+to+Business\/Transcriptions\/Episode34ComparativeAdvantageAndTrade_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \"Episode 34: Comparative Advantage &amp; Trade\" (opens in new window)<\/a>\u00a0or the <a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Intro+to+Business\/Transcriptions\/Episode34Comparative+AdvantageAndTrade_alternative.txt\" target=\"_blank\" rel=\"noopener\">text alternative for \"Episode 34: Comparative Advantage &amp; Trade\" (opens in new window)<\/a>.\r\n<h2>Balance of Trade<\/h2>\r\n<strong>Balance of trade <\/strong>is the difference between the value of a country\u2019s imports and its exports, as follows:\r\n<p style=\"text-align: center;\"><strong>value of exports \u2013 value of imports = balance of trade<\/strong><\/p>\r\nNOTE: It's important to use this formula just as it's presented, without altering the sequence of values.\r\n\r\n<section class=\"textbox example\">\r\n<h3>Imagine Nation's Balance of Trade<\/h3>\r\nLet\u2019s look at the balance of trade for \"Imagine Nation.\"\r\n\r\nImagine Nation is located in a region that lacks phosphate as\u00a0a natural resource. However, it\u00a0does have an abundance of sugarcane. As a result of its comparative advantages, Imagine Nation imports phosphate from Christmas Island (it's a real place in Australia\u2014look it up!) to fertilize the sugarcane it grows, and it uses the sugarcane to manufacture saltwater taffy, which it exports to Christmas Island.\r\n\r\nThe following table shows Imagine Nation's\u00a0imports and exports with Christmas Island in 2021.\r\n<div align=\"center\">\r\n<table style=\"width: 372px;\"><caption>Imagine Nation 2022 Import and Exports with Christmas Island<\/caption>\r\n<thead>\r\n<tr>\r\n<th style=\"width: 54px;\" scope=\"col\"><strong>Year<\/strong><\/th>\r\n<th style=\"width: 187px;\" scope=\"col\"><strong>Imports (phosphate)<\/strong><\/th>\r\n<th style=\"width: 131px;\" scope=\"col\"><strong>Exports (taffy)<\/strong><\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td style=\"width: 54px;\"><strong>2021<\/strong><\/td>\r\n<td style=\"width: 187px;\">$45,000,000<\/td>\r\n<td style=\"width: 131px;\">$75,000,000<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nUsing these figures, we can easily calculate Imagine Nation's balance of trade in 2021:\r\n<p style=\"text-align: center;\"><strong>$75,000,000 (exports) \u2212 $45,000,000 (imports) = $30,000,000<\/strong><\/p>\r\nThis means that Imagine Nation had\u00a0a trade surplus of $30,000,00\u00a0with Christmas Island, since exports exceeded imports. We can also say that Imagine Nation was a \"net exporter,\" meaning it exported more than it imported.\r\n\r\nHowever, the picture\u00a0changed in\u00a02022, when the Australian government closed the phosphate mine on Christmas Island. Imagine Nation had to import\u00a0phosphate from Morocco, instead, and was not able to get the same favorable pricing as before. Consequently, sugarcane farmers paid more for fertilizer, the price of sugarcane went up, and Imagine Nation had to raise the price on its saltwater taffy. Sadly,\u00a0the people of Morocco aren't\u00a0really big fans of saltwater taffy, so exports fell. The following table shows Imagine Nation's imports and exports with\u00a0Morocco in 2022.\r\n<div align=\"center\">\r\n<table style=\"width: 372px;\"><caption>Imagine Nation 2022 Imports and Exports with Morocco<\/caption>\r\n<thead>\r\n<tr>\r\n<th style=\"width: 53px;\" scope=\"col\"><strong>Year<\/strong><\/th>\r\n<th style=\"width: 192px;\" scope=\"col\"><strong>Imports (phosphates)<\/strong><\/th>\r\n<th style=\"width: 127px;\" scope=\"col\"><strong>Exports (taffy)<\/strong><\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td style=\"width: 53px;\"><strong>2022<\/strong><\/td>\r\n<td style=\"width: 192px;\">$65,000,000<\/td>\r\n<td style=\"width: 127px;\">$55,000,000<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nWe can use the figures to calculate Imagine Nation's\u00a0balance of trade:\r\n<p style=\"text-align: center;\"><strong>$55,000,000 (exports) \u2212<\/strong><strong>\u00a0$65,000,000 (imports) = \u2212$10,000,000<\/strong><\/p>\r\nThe negative number indicates a\u00a0trade deficit of $10,000,000, showing that Imagine Nation imported more from Morocco than it exported. We would say that Imagine Nation became a\u00a0\"net importer\"\u2014importing more than it was exporting.\r\n\r\nObviously, this is a simple example. A country's global business doesn't amount to just trading phosphate and taffy or cell phones and blue jeans. It includes all kinds of financial transactions: goods and services imported and exported, foreign investments, loans, transfers, and so on. Tracking all these payments provides another way to measure the size of a country's international trade: the balance of payments.\r\n\r\n<\/section>\r\n<h2>Balance of Payments<\/h2>\r\nA country's balance of payments is calculated as follows:\r\n<p style=\"text-align: center;\"><strong>\u00a0t<\/strong><strong>otal money coming into a country (inflow) \u2212 total money going out (outflow) = balance of payments<\/strong><\/p>\r\nNOTE: It's important to use this formula just as it's presented, without altering the sequence of values.\r\n\r\n<section class=\"textbox example\">\r\n<h3>Imagine Nation's\u00a0Balance of Payments<\/h3>\r\nLet's examine Imagine Nation's balance of payments in\u00a02022. The following table shows all of its external transactions during the year.\r\n<div align=\"center\">\r\n<table><caption>Imagine Nation 2022 External Transactions<\/caption>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\"><strong>Year<\/strong><\/th>\r\n<th scope=\"col\"><strong>Imports (phosphates)<\/strong><\/th>\r\n<th scope=\"col\"><strong>Exports (taffy)<\/strong><\/th>\r\n<th scope=\"col\"><strong>Foreign aid (loan) from Hooperland<\/strong><\/th>\r\n<th scope=\"col\"><strong>Purchase of Wandaland assets<\/strong><\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td style=\"text-align: center;\"><strong>2022<\/strong><\/td>\r\n<td style=\"text-align: center;\">$65,000,000<\/td>\r\n<td style=\"text-align: center;\">$55,000,000<\/td>\r\n<td style=\"text-align: center;\">$25,000,000<\/td>\r\n<td style=\"text-align: center;\">$30,000,000<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nWhen we calculated Imagine Nation\u2019s balance of trade in 2022, we did not take into account the following two transactions:\r\n<ol>\r\n \t<li>Imagine Nation received foreign aid in the form of a loan from the government of Hooperland in the amount of $25,000,000. This inflow of funds will affect Imagine Nation\u2019s balance of payments.<\/li>\r\n \t<li>Imagine Nation invested in a factory in Wandaland and purchased the factory from the government for $30,000,000. This outflow of funds will affect Imagine Nation\u2019s balance of payments.<\/li>\r\n<\/ol>\r\nWhen we calculate Imagine Nation\u2019s 2022 balance of payments, by taking the inflows (revenue from exports and foreign aid) and subtracting\u00a0the outflows (payments for imports and purchase of foreign assets), the balance is negative, as shown below:\r\n<p style=\"text-align: center;\">($55,000,000 + $25,000,000) (total inflow) \u2013 ($65,000,000 + $30,000,000) (total outflow) = \u2212$15,000,000<\/p>\r\nWhat effect will this have on Imagine Nation? Well, when Imagine Nation's\u00a0leader is briefed by her council of international economic advisers, they will inform her that the country currently has an \"unfavorable balance of payments.\" That is, less\u00a0money is coming into the country than is going out. If, on the other hand, the balance of payments were a positive number (inflow exceeded outflow), then Imagine Nation could say that it has a \"favorable balance of payments.\"\r\n\r\n<\/section>","rendered":"<section class=\"textbox learningGoals\">\n<ul>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Explain what globalization is and how it is related to business&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Explain what globalization is and how it is related to business<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand why absolute and comparative advantage make companies want to do business in foreign markets&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand why absolute and comparative advantage make companies want to do business in foreign markets<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand the difference between balance of trade and balance of payments&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand the difference between balance of trade and balance of payments<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand the difference between trade deficits and trade surpluses&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand the difference between trade deficits and trade surpluses<\/span><\/li>\n<\/ul>\n<\/section>\n<h2>What Is Globalization?<\/h2>\n<p><iframe loading=\"lazy\" src=\"\/\/plugin.3playmedia.com\/show?mf=3704536&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=QXN_jl2abEE&amp;video_target=tpm-plugin-sj0iri5w-QXN_jl2abEE\" width=\"800px\" height=\"520px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe><\/p>\n<p>You can view the\u00a0<a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Intro+to+Business\/Transcriptions\/GlobalizationEasilyExplained_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for &#8220;Globalization easily explained&#8221; (opens in new window)<\/a>\u00a0or the <a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Intro+to+Business\/Transcriptions\/GlobalizationEasilyExplained_alternative.txt\" target=\"_blank\" rel=\"noopener\">text alternative for &#8220;Globalization easily explained&#8221; (opens in new window)<\/a>.<\/p>\n<h2>Absolute and Comparative Advantage<\/h2>\n<p>The following video provides an excellent illustration of comparative and absolute advantage and explains why they are such\u00a0important considerations in how countries decide to specialize and\u00a0trade.<\/p>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"Episode 34: Comparative Advantage &amp; Trade\" width=\"500\" height=\"375\" src=\"https:\/\/www.youtube.com\/embed\/38hvvAzgXZY?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>You can view the\u00a0<a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Intro+to+Business\/Transcriptions\/Episode34ComparativeAdvantageAndTrade_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for &#8220;Episode 34: Comparative Advantage &amp; Trade&#8221; (opens in new window)<\/a>\u00a0or the <a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Intro+to+Business\/Transcriptions\/Episode34Comparative+AdvantageAndTrade_alternative.txt\" target=\"_blank\" rel=\"noopener\">text alternative for &#8220;Episode 34: Comparative Advantage &amp; Trade&#8221; (opens in new window)<\/a>.<\/p>\n<h2>Balance of Trade<\/h2>\n<p><strong>Balance of trade <\/strong>is the difference between the value of a country\u2019s imports and its exports, as follows:<\/p>\n<p style=\"text-align: center;\"><strong>value of exports \u2013 value of imports = balance of trade<\/strong><\/p>\n<p>NOTE: It&#8217;s important to use this formula just as it&#8217;s presented, without altering the sequence of values.<\/p>\n<section class=\"textbox example\">\n<h3>Imagine Nation&#8217;s Balance of Trade<\/h3>\n<p>Let\u2019s look at the balance of trade for &#8220;Imagine Nation.&#8221;<\/p>\n<p>Imagine Nation is located in a region that lacks phosphate as\u00a0a natural resource. However, it\u00a0does have an abundance of sugarcane. As a result of its comparative advantages, Imagine Nation imports phosphate from Christmas Island (it&#8217;s a real place in Australia\u2014look it up!) to fertilize the sugarcane it grows, and it uses the sugarcane to manufacture saltwater taffy, which it exports to Christmas Island.<\/p>\n<p>The following table shows Imagine Nation&#8217;s\u00a0imports and exports with Christmas Island in 2021.<\/p>\n<div style=\"margin: auto;\">\n<table style=\"width: 372px;\">\n<caption>Imagine Nation 2022 Import and Exports with Christmas Island<\/caption>\n<thead>\n<tr>\n<th style=\"width: 54px;\" scope=\"col\"><strong>Year<\/strong><\/th>\n<th style=\"width: 187px;\" scope=\"col\"><strong>Imports (phosphate)<\/strong><\/th>\n<th style=\"width: 131px;\" scope=\"col\"><strong>Exports (taffy)<\/strong><\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td style=\"width: 54px;\"><strong>2021<\/strong><\/td>\n<td style=\"width: 187px;\">$45,000,000<\/td>\n<td style=\"width: 131px;\">$75,000,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>Using these figures, we can easily calculate Imagine Nation&#8217;s balance of trade in 2021:<\/p>\n<p style=\"text-align: center;\"><strong>$75,000,000 (exports) \u2212 $45,000,000 (imports) = $30,000,000<\/strong><\/p>\n<p>This means that Imagine Nation had\u00a0a trade surplus of $30,000,00\u00a0with Christmas Island, since exports exceeded imports. We can also say that Imagine Nation was a &#8220;net exporter,&#8221; meaning it exported more than it imported.<\/p>\n<p>However, the picture\u00a0changed in\u00a02022, when the Australian government closed the phosphate mine on Christmas Island. Imagine Nation had to import\u00a0phosphate from Morocco, instead, and was not able to get the same favorable pricing as before. Consequently, sugarcane farmers paid more for fertilizer, the price of sugarcane went up, and Imagine Nation had to raise the price on its saltwater taffy. Sadly,\u00a0the people of Morocco aren&#8217;t\u00a0really big fans of saltwater taffy, so exports fell. The following table shows Imagine Nation&#8217;s imports and exports with\u00a0Morocco in 2022.<\/p>\n<div style=\"margin: auto;\">\n<table style=\"width: 372px;\">\n<caption>Imagine Nation 2022 Imports and Exports with Morocco<\/caption>\n<thead>\n<tr>\n<th style=\"width: 53px;\" scope=\"col\"><strong>Year<\/strong><\/th>\n<th style=\"width: 192px;\" scope=\"col\"><strong>Imports (phosphates)<\/strong><\/th>\n<th style=\"width: 127px;\" scope=\"col\"><strong>Exports (taffy)<\/strong><\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td style=\"width: 53px;\"><strong>2022<\/strong><\/td>\n<td style=\"width: 192px;\">$65,000,000<\/td>\n<td style=\"width: 127px;\">$55,000,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>We can use the figures to calculate Imagine Nation&#8217;s\u00a0balance of trade:<\/p>\n<p style=\"text-align: center;\"><strong>$55,000,000 (exports) \u2212<\/strong><strong>\u00a0$65,000,000 (imports) = \u2212$10,000,000<\/strong><\/p>\n<p>The negative number indicates a\u00a0trade deficit of $10,000,000, showing that Imagine Nation imported more from Morocco than it exported. We would say that Imagine Nation became a\u00a0&#8220;net importer&#8221;\u2014importing more than it was exporting.<\/p>\n<p>Obviously, this is a simple example. A country&#8217;s global business doesn&#8217;t amount to just trading phosphate and taffy or cell phones and blue jeans. It includes all kinds of financial transactions: goods and services imported and exported, foreign investments, loans, transfers, and so on. Tracking all these payments provides another way to measure the size of a country&#8217;s international trade: the balance of payments.<\/p>\n<\/section>\n<h2>Balance of Payments<\/h2>\n<p>A country&#8217;s balance of payments is calculated as follows:<\/p>\n<p style=\"text-align: center;\"><strong>\u00a0t<\/strong><strong>otal money coming into a country (inflow) \u2212 total money going out (outflow) = balance of payments<\/strong><\/p>\n<p>NOTE: It&#8217;s important to use this formula just as it&#8217;s presented, without altering the sequence of values.<\/p>\n<section class=\"textbox example\">\n<h3>Imagine Nation&#8217;s\u00a0Balance of Payments<\/h3>\n<p>Let&#8217;s examine Imagine Nation&#8217;s balance of payments in\u00a02022. The following table shows all of its external transactions during the year.<\/p>\n<div style=\"margin: auto;\">\n<table>\n<caption>Imagine Nation 2022 External Transactions<\/caption>\n<thead>\n<tr>\n<th scope=\"col\"><strong>Year<\/strong><\/th>\n<th scope=\"col\"><strong>Imports (phosphates)<\/strong><\/th>\n<th scope=\"col\"><strong>Exports (taffy)<\/strong><\/th>\n<th scope=\"col\"><strong>Foreign aid (loan) from Hooperland<\/strong><\/th>\n<th scope=\"col\"><strong>Purchase of Wandaland assets<\/strong><\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td style=\"text-align: center;\"><strong>2022<\/strong><\/td>\n<td style=\"text-align: center;\">$65,000,000<\/td>\n<td style=\"text-align: center;\">$55,000,000<\/td>\n<td style=\"text-align: center;\">$25,000,000<\/td>\n<td style=\"text-align: center;\">$30,000,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>When we calculated Imagine Nation\u2019s balance of trade in 2022, we did not take into account the following two transactions:<\/p>\n<ol>\n<li>Imagine Nation received foreign aid in the form of a loan from the government of Hooperland in the amount of $25,000,000. This inflow of funds will affect Imagine Nation\u2019s balance of payments.<\/li>\n<li>Imagine Nation invested in a factory in Wandaland and purchased the factory from the government for $30,000,000. This outflow of funds will affect Imagine Nation\u2019s balance of payments.<\/li>\n<\/ol>\n<p>When we calculate Imagine Nation\u2019s 2022 balance of payments, by taking the inflows (revenue from exports and foreign aid) and subtracting\u00a0the outflows (payments for imports and purchase of foreign assets), the balance is negative, as shown below:<\/p>\n<p style=\"text-align: center;\">($55,000,000 + $25,000,000) (total inflow) \u2013 ($65,000,000 + $30,000,000) (total outflow) = \u2212$15,000,000<\/p>\n<p>What effect will this have on Imagine Nation? Well, when Imagine Nation&#8217;s\u00a0leader is briefed by her council of international economic advisers, they will inform her that the country currently has an &#8220;unfavorable balance of payments.&#8221; That is, less\u00a0money is coming into the country than is going out. If, on the other hand, the balance of payments were a positive number (inflow exceeded outflow), then Imagine Nation could say that it has a &#8220;favorable balance of payments.&#8221;<\/p>\n<\/section>\n","protected":false},"author":21,"menu_order":9,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Balance of Trade and Balance of Payments\",\"author\":\"Linda Williams\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"copyrighted_video\",\"description\":\"Globalization easily explained explainityu00ae explainer video\",\"author\":\"explainer video\",\"organization\":\"\",\"url\":\"https:\/\/www.youtube.com\/watch?v=QXN_jl2abEE\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"},{\"type\":\"cc\",\"description\":\"Episode 34: Comparative Advantage & Trade\",\"author\":\"mjmfoodie\",\"organization\":\"\",\"url\":\"https:\/\/www.youtube.com\/watch?v=38hvvAzgXZY\",\"project\":\"\",\"license\":\"cc-by-nc-nd\",\"license_terms\":\"\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":2819,"module-header":"fresh_take","content_attributions":[{"type":"original","description":"Balance of Trade and Balance of Payments","author":"Linda Williams","organization":"Lumen Learning","url":"","project":"","license":"cc-by","license_terms":""},{"type":"copyrighted_video","description":"Globalization easily explained explainityu00ae explainer video","author":"explainer video","organization":"","url":"https:\/\/www.youtube.com\/watch?v=QXN_jl2abEE","project":"","license":"arr","license_terms":"Standard YouTube License"},{"type":"cc","description":"Episode 34: Comparative Advantage & Trade","author":"mjmfoodie","organization":"","url":"https:\/\/www.youtube.com\/watch?v=38hvvAzgXZY","project":"","license":"cc-by-nc-nd","license_terms":""}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2828"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/users\/21"}],"version-history":[{"count":8,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2828\/revisions"}],"predecessor-version":[{"id":7738,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2828\/revisions\/7738"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/parts\/2819"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2828\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/media?parent=2828"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=2828"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/contributor?post=2828"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/license?post=2828"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}