Saturday, July 01, 2006  The Current Acccount vs the Trade
Deficit  A commentator asks:  Professor Mankiw, Would you please
discuss the differences between current account deficits and
trade deficits? They are often discussed as if they were
interchangeable, but I notice that for some countries they
diverge significantly.  Here is a brief overview.  The trade
balance is the amount a country receives for the export of goods
and services minus the amount it pays for its import of goods
and services.  The current account is the trade balance plus the
net amount received for domestically-owned factors of production
used abroad.  Hence, if an American owns an apartment building
in London, the rent he receives is part of the current account
but not part of the trade balance. In essence, the current
account is a very broad measure of the trade balance where the
income from domestically-owned factors used abroad are
considered an export of factor services and the payments for
foreign-owned factors used here are consi