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| Home About the TEDC The TEDC at Work Commercial Areas Doing Business in Teaneck Real Estate Community Resources In the News Maps & Directions Terms / Conditions / Policies Contact Us | International trade. Each country participating in international trade, record exports and imports, and a number coming into the country and resulting cash flows in the form of exports and imports of capital receipts and payments related to tourism, freight vessels, transfer of emigrants, and so d. The ratio between the sum of all cash receipts and the amount of payments received, respectively, and produced by this country on any items over a certain period of time reflects the balance of payments of the country. If revenues exceed expenditures, then we say that the balance of payments is active, or reduced the surplus if revenues exceed costs in, then talk about the balance of payments deficit. The balance of payments is divided on the trade balance and the invisibles balance. Trade balance includes only revenues and costs associated with exporting and importing goods for their part, invisible exports and imports cover all other items of balance of payments. The exchange rate is the ratio of exchange between currency units (or the price of currency of one country into another country's currency units). The need for exchange between different currencies due to the fact that the money of any one country cannot serve as a means of payment acceptable in other countries, so that everyone who has economic ties with other countries, wants to eventually get the proceeds in money of their own country . If the balance sheets of all countries were always in equilibrium, then there would be no any problems. If, as is the case in reality, some countries reduce their balance of payments deficit, and while others - with the "full", the question arises whether such a situation tends to perpetuate, or there are economic mechanisms that can return the situation to equilibrium. The classical economists believed that the international economic system, the second hypothesis is true. What are the main characteristics of the mechanism, which is considered the classics, works toward restoring the balance of payments? In this regard, a distinction between the situations where there is a gold standard with a firm exchanges rate, and the case of inconvertible currency with a flexible exchange rate. In the first case, countries with balance of payments deficit "lose" the gold in favor of countries with a surplus in balance of payments. This movement of gold has a number of consequences for the country as a passive balance of payments, and with the active. In the countries of the deficit is a reduction of gold reserves, which in turn causes a reduction in the mass of money in circulation, and because we know that, according to the quantity theory of money, reducing the amount of money in circulation leads to a proportional reduction in the overall price level, we can conclude that in countries with balance of payments deficit should drop the price level. To summarize, we can state that in the theoretical construction of the classical school has an automatic mechanism to ensure the establishment of equilibrium in international trade, based on the movement of prices (of goods or money), i.e., a mechanism similar to those that provide a balance in the goods market and the labor market. |
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