Assume that there are only two countries in the world: USA and Brazil, so all international...

ITEM	Billions of US Dollars
Imports of goods from Brazil	185
Imports of services from Brazil	120
Foreign direct investment by Brazil to the USA	14
Exports of goods to Brazil	238
Exports of services to Brazil	155
US investment to Brazil	110
Income received from Brazilians	12
Income paid to Brazilians	6
Net unilateral transfers between USA and Brazil	5
Balancing item	-3

Calculate the US trade balance
Calculate the US current account balance
Calculate the US financial account balance
Was the United States a net borrower or a net lender? Explain your answer.
Assume that an exchange rate of USD increased from 3.14 Brazilian Reals to 4.62 Brazilian Reals for 1 USD. Explain how this change may affect the US trade balance, current account balance, and the financial account balance.

Solutions

Expert Solution

All figures in $billions

Trade balance is net export of goods and services:

USA export of goods and services = 238+155= 393

USA import of goods and services = 185+120= 305

Net = 393-305 = 88

Current account balance has balance of trade in goods and services and also net income and transfers.

Income received = 12 and income paid = 6

Hence, Net income = 6

Transfers = 5

hence income and transfer 6+5 = 11 with existing 88 on trade balance = 11+88 =99

Current account surplus = 99

Financial account : Foreign direct investment in USA = 14 and to Brazil 110

net deficit on financial account = 96

USA has surplus and hence will act as lender.

In this case, Real has depreciated as $1 can buy more Reals. This will make goods and services expensive from USA and imports cheaper in USA. This will deteriorate trade and Current account balance.

Financial account will be in deficit as extra money will go out of USA. Current account surplus is matched by financial account deficit to make balance of payment zero in all.

Rahul Sunny answered 5 months ago

Next > < Previous

Related Solutions

Assume that there are only two countries in the world: USA and Brazil, so all international...

Assume that there are only two countries in the world: USA and Brazil, so all international transactions are only between those two countries. The table gives the information regarding international transactions of USA in 2018: ITEM Billions of US Dollars Imports of goods from Brazil 185 Imports of services from Brazil 120 Foreign direct investment by Brazil to the USA 14 Exports of goods to Brazil 238 Exports of services to Brazil 155 US investment to Brazil 110 Income received...

Assume that Mexico and Brazil are the only two countries in the world and they produce soybeans and avocados.

Assume that Mexico and Brazil are the only two countries in the world and they produce soybeans and avocados. Mexico 150 million hours of labor per month 5 hours to produce 1 pound of soybeans 3 hours to produce 1 pound of avocados Brazil 300 million hours of labor per month 1 hours to produce 1 pound of soybeans 3 hours to produce 1 pound of avocados For each good, state and explain which country has the comparative advantage.

There are two countries, England and USA, in a world where there are only two factors...

There are two countries, England and USA, in a world where there are only two factors of production, land and labor. England has 8 million acres of land and 2 million workers while USA has 5 million acres of land and 1 million workers. Both countries produce two goods, cars and watches, using identical technology. Per acre of land, the production of cars requires 4 workers while the production of watches requires 1 worker. Using a PPF/indifference curve graph, illustrate...

Assume that there are only two countries in the world, Atlantica and Pacifica. Both countries produce...

Assume that there are only two countries in the world, Atlantica and Pacifica. Both countries produce and consume surfboards. The pre-trade equilibrium price of surfboards in Atlantica is $300 and the pre-trade price of surfboards in Pacifica is $400. a) Draw a three-graph diagram to depict the Pacifica, Atlantica, and international markets for surfboards. Assume that free trade opens up between Pacifica and Atlantica yielding an international price of $375 with 10,000 surfboards being traded. Be sure to label all...

Assume a flexible exchange rate system in a world consisting of only two countries: Canada and...

Assume a flexible exchange rate system in a world consisting of only two countries: Canada and Japan. The Canadian currency is the canadian dollar and the japanese currency is yen. a. Show graph and explain the effects on the exchange rate of political instability in Canada b. As a result of this change, will canada find japanese goods more expensive, less expensive, or just as expensive as before, explain.

Consider a world with two countries - USA and Foreign and a competitive market of sugar...

Consider a world with two countries - USA and Foreign and a competitive market of sugar in both countries. Foreign is more efficient in the production of sugar and in a free trade equilibrium, US would import part of its consumption of sugar. Describe graphically such trading equilibrium of sugar. What would be the effect on the sugar price in USA and on the welfare (measured by consumer surplus, producer surplus and tariff revenue) of US when US imposes an...

Assume now that the world consists of only two countries: Brandtlandia and Hollandia. Every year many...

Assume now that the world consists of only two countries: Brandtlandia and Hollandia. Every year many tourists visit each other’s countries. The only other good Brandtlandia imports is tulip bulbs. Brandtlandia uses the Thaler as currency, and Hollandia the Florin. The policy options in Brandtlandia are copied here for your convenience. Policy 1: Open the economy to trade with no trade protection. Policy 2: Open the economy to trade but impose a tariff on the import of tulip bulbs that...

Assume throughout that those two countries (Italy and Sweden) are the only two countries in the...

Assume throughout that those two countries (Italy and Sweden) are the only two countries in the world, at least for purposes of trade. There are two goods: shoes and calculators. Consumers in both countries always spend half of their income on shoes and half of their income on calculators. The only factor of production is labour. Each Italian worker can produce 1 shoe or 2 calculators per unit of time. Each Swedish worker can produce 4 shoes or 2 calculators...

Suppose that there are only two small countries in the world: Ascot, with a population of...

Suppose that there are only two small countries in the world: Ascot, with a population of 29,400 people, and Delwich, with a population of 21,000 people. Ascot's GDP is equal to $150 million while Delwich's GDP is $210 million. Delwich's GNP has been estimated to be equal to $240 million. The revenue earned by firms that operate in Delwich but are headquartered in Ascot is equal to $60 million. Given the data above, Ascot's GNP is $___ million. (Enter your...

Assume that the world consists of two countries – US and Germany. Both the countries produce...

Assume that the world consists of two countries – US and Germany. Both the countries produce two goods – Automobiles and Corn. There are three factors of production, Capital, Land and Labour. The specific factor in Automobiles is Capital while in Corn it is Land. Labour is used in the production of both the goods. Germany is assumed to be relatively more well- endowed in Capital than the US, while US is relatively more well-endowed in Land than Germany. Answer...

Subjects