Economics (McConnell), 18th Edition

Problem:

Sigma's balance-of-payments data for the previous year are shown in the table below. Amounts are in billions of dollars.

What is Sigma's:

1. balance on goods?
2. balance on services?
3. balance on goods and services?
4. balance on current account?
5. balance on financial account?
6. balance on capital and financial account?
7. Does Sigma's balance of payments show a deficit, a surplus, or are its international payments accounts in balance?

Answer:

1. The balance on goods is equal to net exports (exports minus imports), or 100 – 130 = –$30 billion.
2. The balance on services is equal to net services exports, or 50 – 45 = $5 billion.
3. The balance on goods and services is the sum of the balance on goods and the balance on services, or –30 + 5 = –$25 billion.
4. The balance on current account is the balance on goods and services (–25) plus net investment income (–5) and net transfers (+15), or –$15 billion.
5. The balance on financial account equals net foreign purchases of assets, or 100 – 80 = $20 billion.
6. The balance on capital and financial account is sum of the balance on capital account (–5) and the balance on financial account (+20), or +$15 billion.
7. The balance of payments sums the balance on current account and the balance on capital and financial account. For Sigma, the balance of payments shows a zero balance: the $15 billion deficit on current account exactly offsets the $15 billion surplus on the capital and financial account.