Question

suppose the current account for the us shows deficit of $400 billion in good/merchandise and deficit of $800 billion in service. This would imply the u.s has a relative comparative advantage in the production of what?

Suppose the is has the following net amounts appearing on their balance of payments statment: goods= -50 , service= +100 , factor income= +120 unilateral transfer= -25 , portfolio investment= +75. What is the us balance of trade. what is the the us current balance ?

Answer 1

Part 1: We have been given the following information.

current account deficit in good/merchandise = $400 billion

current account deficit in service = $800 billion

Now, a country has a comparative advantage in the production of a good or service if the opportunity cost of producing the good or service is lower domestically than in any other country.

In the present case since the current account deficit of the US is lower in the case of good/merchandise as compared to service, so the US has comparative advantage in the production of good/merchandise.

Part 2: We have been given the following net amounts appearing on the Balance of payments statement.

Goods = – 50

Service = + 100

Factor Income = + 120

Unilateral Transfer = – 25

Portfolio Investment = + 75

Now, Balance of Trade is (Exports–Imports) or Net Exports

So, Balance of Trade = net exports of good + net export of service

Balance of Trade = – 50 + 100

Balance of Trade = + 50

Current Account Balance = Net Exports + Net Income from Abroad + Net Current Transfers

Net Exports = + 50

Net Income from Abroad = + 120

Net Current Transfers = – 25

Current Account Balance = 50 + 120 + (– 25)

Current Account Balance = + 145