Question

# 1) Over the course of a year, a nation tracked its foreign transactions and arrived at...

1) Over the course of a year, a nation tracked its foreign transactions and arrived at the following amounts:

Merchandise exports 500

Service exports 75;

Net unilateral transfers 10;

Foreign assets at home (capital inflows) 300

Changes in official reserves -35

Merchandise imports 600

Service imports 50

What are this nation’s balance of trade, current account balance, and capital account balance?

Ans. =

A) Balance of Trade = Exports of Merchandise - Imports of Merchandise

= 500 - 600
= - \$100

B) Current Account Balance = (Exports of Merchandise - Imports of Merchandise) + ( Exports of Services - Imports of Services) + Net Unilateral Transfers

= 500 - 600 + (75 - 50) + 10
= 500 - 600 + 25 + 10
= - \$65

C) Capital Account Balance = Capital Inflows - Capital Outflows

= 300 - 200
= \$100

D) Balance of Payments = Current account Balance + Capital account Balance

= -65 + 100

= +35

Hence, Changes in Official Reserves of (-35) means 35 outflow.

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Thanks
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