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EC140 Chapter Notes - Chapter 35: Mercantilism, The Foreign Exchange, Demand Curve

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lemonbadger842
11 Apr 2016
School
WLU
Department
Economics
Course
EC140
Professor
Ken Jackson

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EC140 Full Course Notes
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Document Summary

Summary of a country"s transacions with the rest of the world. Credits: any transacion that is an inlow of money in the country"s economy. Debits: any transacion that is an ouflow of money in the country s economy. Imports of goods, services and bond purchases by naionals. Current account: in which trade (trade account) and interest dividends received or payed over bonds are recorded (capital service account) Capital account: in which receipts of bond sells and purchases are recorded. The balance of payments must always equal 0. Media mistakes the term balance of payments deicit for current account deicit. There cannot be a balance of payments deicit. Balance of payments = ca + ka = 0. When a country trades with another there must be an exchange of currencies. The exchange rate determines how much of a currency can be exchanged for another. It"s the most volaile of all macroeconomic variables. An appreciaion is a fall in the exchange rate.

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Related Questions

QUESTION 10

Below is a table for the Balance of Payments of Goegania, a prosperous island nation.

Current Account Ā  Financial Account
Exports of Goods $1,940 Ā  Capital Inflow $661 Ā 
Imports of Goods ??? Ā  Capital Outflow $347 Ā 
Trade Balance Ā  ??? Financial Account Ā  ???
Exports of Services $569 Ā  Capital Account Ā  $0
Imports of Services ??? Ā  Statistical Discrepancy Ā  $0
Services Balance Ā  $16 Balance of Payments Ā  ???
Income Received on Investments $704 Ā  Ā  Ā  Ā 
Income Paid on Investments $505 Ā  Ā  Ā  Ā 
Net Income on Investments Ā  ??? Ā  Ā  Ā 
Net Transfers Ā  $-168 Ā  Ā  Ā 
The balance on the Current Account Ā  ??? Ā  Ā  Ā 

Given this information, what is the value for the imports of goods?

Sometimes this question generates some weird numbers. Remember that you would always add the values in a category to get the total. So the total for the Financial Account is always Capital Inflow + Capital Outflow and the Trade Balance is always Exports + Imports for this table. It's just that sometimes those values being added are negative. If you get a negative answer, you should enter in the negative.

In 1995, the U.S. economy imported $750 billion in goods and exported $576 billion in goods. However, it exported $219 billion in services and imported $141 billion in services. Receipts of income from abroad were $211 billion while income payments going abroad were $191 billion. Unilateral transfers from the United States to other countries were $34 billion. Calculate the merchandise trade deficit for 1995. Calculate the current account balance for 1995. Also, explain how you decided whether payments on foreign investment and unilateral transfers counted on the positive or the negative side of the current account balance.

In 2001, the United Kingdom's economy exported goods worth Ā£192 billion and services worth another Ā£77 billion. It imported goods worth Ā£225 billion and services worth Ā£66 billion. Receipts of income from abroad were Ā£140 billion while income payments going abroad were Ā£131 billion. Government transfers from the United Kingdom to the rest of the world were Ā£23 billion, while various U.K government agencies received payments of Ā£16 billion from the rest of the world.

  1. Calculate the U.K. merchandise trade deficit for 2001.Ā 
  2. Calculate the current account balance for 2001.Ā 
  3. Explain how you decided whether payments on foreign investment and government transfers counted on the positive or the negative side of the current account balance for the United Kingdom in 2001.