Question

You work for the treasury of the Seven Kingdoms. Your task is to evaluate the country’s international trade activities. Below is the data you collected (in Gold Dragons).

	Value
Consumption	32670
Investment	30570
Government purchases	128200
Exports	22140
Imports	27350
Factor income receipts	8130
Factor income payments	6400
Unilateral Transfers received	1350
Unilateral Transfers made	2550
Acquisition of financial assets (by Seven Kingdoms)	20320
Incurrence of liabilities (by Seven Kingdoms)	25900
Capital transfers received	1400
Capital transfers payed	2300

1. Compute GDP of the Seven Kingdoms.

2. Compute Trade Balance.

3. Compute Net Facto Income from Abroad (NFIA).

4. Compute Net Unilateral Transfers (NUT).

5. Compute Current Account (CA). Does the country have current account deficit, or current account surplus? What does this say about the country’s spending vs. its earnings?

6. Compute Financial Account (FA).

7. Compute Capital Account (KA).

8. Compute statistical discrepancy.

Answer 1

GDP (Gross domestic product is the sum total of final values of all gods and services produced in a country in a year.

Formula to calculate GDP by expenditure method is : C+I+G+(X-M)

Where, C= Consumption expenditure, I= Investment expenditure, G= Govt. expenditure, (X= Export and M=Import)

1. In this case, GDP is:

32670 + 30570 +128200 +( 22140-27350)

=186230 In Gold Dragons.

2. Trade balance is balance on current account:It only considers import-export of goods and services.

22140-27350= 5210 Gold Dragons.

3. Net Factor income from abroad : It is a Factor Income is based on investment income and earned income (Remittance)

8130-6400= 1730 Gold Dragons.

4. Net Unilateral transfer : It has humanitarian aid and payments made by immigrants to their former country of residence.

1350-2550 = -1200Gold Dragons.

5.Current account: It is a part of Balance of payments and has goods, services, income and transfers as sub accounts.

In this case, Goods and services are of -5210 as calculated in net exports

Income is : 1730

Transfers is -1200

Adding together: -5210+1730- 1200= -4680 Gold Dragons

Country exports less and imports more but receives high income from abroad.

6. Financial account: It is Foreign direct, portfolio investment and forex reserves. 20320-25900= -5580 Gold Dragons.

7. Capital account: It is non produced and non financial assets.: 2300-1400= 900 Gold Dragons.

8.Statistical discrepancy : Balance of payment : Current+ capital+financial+financial discrepancies.

-4680+900-5580 = -9360 Gold Dragons.

As Balance of payment is always zero,

-9360 Gold dragons is a statistical discrepancy.