Balance of Payments

Question 1

BoP

Answer 1

provide detailed information concerning the demand and supply of a country’s currency
signal its potential as a business partner for the rest of the world
evaluate the performance of the country in international economic competition

Question 2

Accounts

Answer 2

Current Account trades (X&M) of goods and services
Capital Account purchases & sales of assets
Official Reserve Account purchases & sales of international reserve assets (gold, FX, SDRs)
Statistical Discrepancy

Question 3

Current Account

Answer 3

Merchandise trade
Service
Factor income (income on previous investment)
Unilateral transfers

Question 4

Capital Account

Answer 4

FDI
Portfolio investment
other investment

Question 5

A deficit can be a problem if

Answer 5

persistent.
a large share of GDP.
no compensating inflows of investment income or inward capital account flows.
The Central Bank has low reserves.
The economy has a poor record of repaying debt.
There is a strong connection between a growing economy and trade deficits The deficit could exists because of the import demand for capital goods In the long run, this could be self correcting

Question 6

Y ≡ GDP ≡ C + I + G + (X – M)

Answer 6

S ≡ Y – C – T

(S-I) + (T-G) =BCA