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Balance of Payments Questions A small economy has the following data to be used in questions 1 and 2.

net exports and imports of goods net exports and imports of services net current transfers -2 - 10 5

1.

Which of the following does the small economy demonstrate? a) b) c) d) Current account deficit Current account surplus Capital and financial deficit Capital and financial account of 0

2.

What is the capital and financial account balance? a) b) c) d) Surplus of 7 Surplus of 12 Surplus of 17 Surplus of -22

The following data relates to a hypothetical economy and is used for questions 3 and 4. Balance of Payments Net goods Net services Net Income Current transfers Capital account Financial account Net errors and omissions 3. $b –15 –6 –25 –2 8 ? 0

What is the balance on goods and services (BOGS)? A B C D $21b –$9b –$21b $9b

4.

What is the value of the financial account for this economy? A B C D $40b –$40b $48b –$48b

$40 000 billion ? –$15 000 billion –$2500 billion Using the data in the table above. what is the net income balance for this economy? A B C D –$40 000 billion –$22 500 billion $15 000 billion $2 500 billion 7.5. Balance on Capital and Financial Account Net income Balance on goods and services Net transfers 6. What might cause a deterioration in the current account for this nation? A B C D Increased demand for its exports Decreased demand for imports An increase in the level of net foreign liabilities A decrease in the level of net foreign liabilities Question 8 What would each of the following be recorded as in the balance of payments? i) ii) iii) The $16m earned by the FFA for participating in the World Cup in Germany Australian government gifts towards the reconstruction of East Timor’s infrastructure The sale of live cattle to Indonesia iv) Indian students coming to Australia to study v) The payment for a new Mercedes by a car dealer in Australia vi) End of season overseas trips by footballers vii) Adam Scott’s winnings from his US golf tournaments viii) The purchase of shares in Microsoft USA by an Australian investor ix) Australia providing an aid loan to Papua New Guinea . How would the purchase of a franchise for an Australian-owned hamburger store by a US investor be registered in Australia’s balance of payments? a) b) c) d) As a credit in the current account As a debit in the current account As a credit in the capital and financial account As a debit in the capital and financial account The following information is about a hypothetical economy’s balance of payments and is used for questions 6 and 7.

x) A Japanese company investing in a Queensland golf resort xi) Reinvestment of profits of NAB in its UK subsidiary xii) Reserve bank reducing foreign reserves to lift the exchange rate xiii) An Australian mining company sells iron ore to Japan xiv) A bank borrowing $200m in Euros to help fund Australian projects xv) A migrant from China settles in Australia and brings in their financial assets Question 9 The following were items in a nation’s balance of payments: $ billions Exports of goods Imports of goods Net services Net income Net transfers Net direct investment Net portfolio investment Net capital transfer Change to reserves 52 49 –3 –18 +2 +7 +10 0 –1 a Calculate the following: i Balance of trade in goods ________________________________________________________ ________________________________________________________ ii Balance of trade in goods and services ________________________________________________________ ________________________________________________________ iii Balance on Current Account ________________________________________________________ ________________________________________________________ iv Capital Account Balance ________________________________________________________ ________________________________________________________ iv Capital and Financial Account Balance ________________________________________________________ ________________________________________________________ .