Given below are the current account transactions of an economy in a year
a. exported goods and services worth $120 billion
b. imported goods worth $200 billion
c. revenue earned from manufacturing plants situated abroad equals $80 billion
d. dividend paid to foreign investors equals $10 billion
e. donations and disaster relief funds given to a foreign country equal $10 billion
f. received "gifts" worth $5 billion from foreign donors towards poverty alleviation
i) Calculate the economy's trade balance.
ii) What will be the balance in the economy's current account?
i) The trade balance of an economy is the difference between the value of exports and imports of goods and services. In this case, the economy's trade balance is $120 billion - $200 billion = -$80 billion.
ii) Current account balance = Net Exports + Net factor income from abroad + Net transfers.
In this case, current account balance = $120 billion - $200 billion + $80 billion - $10 billion - + $5 billion = -$15 billion. Thus, there will be a balance of $15 billion in the economy's current account.
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