Question

1. In 2001, the economy of the United Kingdom exported goods worth £192 billion and services worth another £77 billion. It imported goods worth £225 billion and services worth £66 billion. Receipts of income from abroad were £140 billion while income payments going abroad were £131 billion. Government transfers from United Kingdom to the rest of the world were £23 billion, while various U.K. government agencies received payments of £16 billion from the rest of the world.

IF VALUE IS NEGATIVE, USE NEGATIVE (-) SIGN

a. Calculate the U.K. merchandise trade deficit for 2001. Trade deficit = £ ____billion

b. Calculate the current account balance for 2001. Current Account Balance = £ _______billion

2. Imagine that the US economy finds itself in the following situation: a government budget deficit of $100 billion, total domestic savings of $1,500 billion, and total domestic physical capital investment of $1,600 billion.

IF VALUE IS NEGATIVE, USE NEGATIVE (-) SIGN. This represents a deficit.

a. According to the national saving and investment identity, what will be the current account balance?

Current Account Balance = $ ________ billion.

b. What will be the current account balance if investment rises by $50 billion, while the budget deficit and national savings remain the same?

Current Account Balance will (increase/decrease)

____ to $_______billion.

3. The following table provides some hypothetical data on macroeconomic accounts for three countries, represented by A, B, and C, and measured in billions of currency units. In the table below, private household savings is "S", Tax Revenue is "T", Government Spending is "G" and Investment Spending is "I"

Accounts	Country A	Country B	Country C
S	700	500	600
T	0	500	500
G	600	350	650
I	800	400	450

ENTER VALUES AS WHOLE NUMBERS (No decimal places). If negative value, use negative (-) sign.

a. Calculate the trade balance for each country.

Country A: Trade Balance = $

, Country B: Trade Balance = $

, Country C: Trade Balance = $

b. Which country has a balanced trade? Country

c. Calculate the government budget balance and state whether it is a net lender, borrower, or neither internationally.

Country A: The government budget balance is $

and is a

Country B: The government budget balance is $

and is a

Country C: The government budget balance is $

and is a

4.Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1% of Germany's GDP, private savings is 20% of GDP, and physical investment is 18% of GDP.

ENTER ALL VALUES AS WHOLE NUMBERS (No decimals)

a. Based on the national saving and investment identity, what is the trade balance?

The trade balance is

% of GDP.

b. If the government budget surplus falls to zero, how will this affect the trade balance?

The trade balance will (increase/decrease)

by

% to

% of GDP.

c. Now assuming there is no income from abroad or net transfers, what is the current account balance?

The current account balance is

% of GDP, which means there is a (deficit/surplus)

5.A British pound costs $1.56 in US Dollars in 1996, but $1.66 in US Dollars in 1998.

a. Was the pound weaker or stronger against the dollar? Did the dollar appreciate or depreciate versus the pound?

The pound was (weaker/stronger)

than the dollar and (appreciated/depreciated)

from 1996 to 1998.

b. Calculate the cost of the US Dollar in terms of British pounds in 1996 and 1998.

ENTER NUMBERS TO 2 DECIMAL PLACES

1996:

pounds per dollar.

1998:

pounds per dollar.

Answer 1

Answer: All figures in billion pounds.

Balance of payment is a systematic record of transactions between residents of a country and the rest of the world during any given period.

Balance of payment has following accounts: Current, capital, financial and Errors and Omissions.

Under current account following sub accounts are recorded : Goods, services , incomes and transfers

Goods account export-import : 192-225 = - 33

services account export-import : 77-66 = 11

Goods and services make trade balance : which is : -33+11= -22

Income account received-sent : 140-131 = 9

transfer account received-sent : 16-23 = 7

If all these values are taken then : -33+11+9+7= -6

a. Calculate the U.K. merchandise trade deficit for 2001. Trade deficit = - £22 billion

b. Calculate the current account balance for 2001. Current Account Balance = - £6 billion