Question

Consider the table​ below, which shows current account information for a country. All figures are in billions of dollars.

Exports of goods 4565

Imports of goods - 3967

Exports of services 899

Imports of services -845

Net unilateral transfers -23

According to the​ table, the merchandise trade balance for this country is ​$? billion.​ (Enter your response as an​ integer.)

According to the​ table, the current account balance is ​? ​billion

and​ thus, if there is no government​ intervention, the financial account balance must be ​? billion. ​(Enter your responses as​ integers.)

Answer 1

Given the above data about the export and import of goods and services and unilateral transfers,

a) Merchandise trade balance is the difference in the value between exported and imported goods.

Therefore, merchandise trade balance = Export of goods - Import of goods

= 4565 - 3967 = 598 billion dollars

Ans. There is a surplus in the merchandise trade balance of USD 598 billion

b) The current account balance is given by the formula: Export of goods + Export of services - Import of goods - Import of services + net current transfers

= 4565 + 899 - 3967 - 845 + 23

= 675 billion USD

Ans. There is a current account surplus of USD 675 billion.

A current account surplus means that the country saves more than its investment needs.

Thus, if there is no government intervention, the financial account balance must be negative current account balance

i.e. FA balance = - CA balance = deficit of USD 675 billion