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 = goods and service export - goods and service import = (350+200)-(400+100)=50

b) Current account balance =  net international transfers+Merchandise trade balance=50+75=125

Since this is positive it means that Westlandia has current account surplus.

c) Balance of payment = Current account balance+financial account  balance =0.

Since BoP has to be zero, so Financial account balance is -75.

There is financial account deficit