Question

The economy of Westlandia exported $350 billion of goods and $200 billion of services, while importing $400 billion of goods and $100 billion of services in 2017. The net factor income payments from the rest of the world were $150 billion. a) What was the merchandise trade balance for Westlandia? b) If Westlandia’s balance of payments on current account was $75 billion, what are Westlandia’s net international transfers? What does this figure indicate? c) What is Westlandia’s balance of payments on financial account? What does this figure indicate?

Answer 1

a) Merchandise trade balance = exports of goods and services - imports of goods and services

   = 350 + 200 - 400 - 100 = $100 billion

b) Current Account ablance = Trade balance + net international transfers + net factor income

Net transfers = 75 - 100 - 150 = $ -175 billion

This figure indicates that Westlandia is incurring a current account deficit of $175 billion. It means the country imports more goods, services and capital than it exports.

c) Financial account balance cannot be determined with the given data as it includes direct investment, portfolio investment and reserve assets.