Answer to Question #314067 in Macroeconomics for Maya

Question

Why a nation’s overall balance of payment must equal zero? Explain.

Answer 1

The Balance of Payments (BOP) records, in summary form, every single international transaction. Also, the BOP uses a double-entry accounting system, where every entry MUST be balanced (hence the name) by an entry (or entries) that is (or are together) equal and opposite. the BOP MUST add up to 0. Whenever you enter one entry in the BOP (say in the CA), there must be an equal and opposite entry somewhere else (often this will be in the FA, but it can be anywhere, including even in the CA again).