Question

In: Economics

Explain what is included in each of these 2 accounts in Canada: Capital or Current account...

Explain what is included in each of these 2 accounts in Canada:

Capital or Current account Increase or decrease in the balance
A Canadian purchases a house in Florida.
Canada imports masks from Germany
An Italian purchases shares of CIBC
Japan imports Maple syrup from Canada
An American purchases a house in Hamilton

Solutions

Expert Solution

The current account of BoP includes inflow and outflow ( transactions) of goods and services, unilateral transfer, profit etc , while the capital account records net changes of asset and liabilities.

i. Canadian purchase a house in Florida — It is a capital outflow, so it's a part of capital account payment. It reduces the balance. It increases the assets of Canada.

ii. Canada imports mask from Germany — it will be recorded in the current account of BoP in the payments ( credit) side , it will decrease the balance. Merchandise trade is a part of current account of BoP as it doesn't change assets or liabilities.

iii.An Italian purchases shares of CIBC — It will be recorded in the debit side of capital account of the BoP , it creates liabilities for Canada. It increases the balance

iv.Japan imports Maple syrup from Canada ‐ It is export for Canada so it will be included in the current account receipts ( debit) side. It increases balance.

v.An American purchases a house in Hamilton. ‐ It will be recorded in the capital account debit side, it creates liabilities for Canada. It increases balance.


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