Question (12 marks)
a) The table below provides hypothetical data for a country's balance of payments. You can assume the balance on the capital account is zero.
Account Billions of Dollars
Exports of Goods $1280
Imports of Goods -$850
Exports of Services $320
Imports of Services -$210
Income received on investment $120
Overseas medical aid -$90
Increase in foreign holdings of assets $1450
Increase in holdings of assets in foreign countries -$2010
Using the above data calculate the following: (8 marks)
- The balance of trade on goods and services
- The balance on the current account
- The balance on the financial account
- Net errors and omissions (if any)
b) State whether each of the following statements is true or false, and briefly explain why. (4 marks)
- The major difference between an open economy and a closed economy is that an open economy is a market economy while a closed economy relies on central planning.
- When Australia sends money to the Philippines to help typhoon survivors, the transaction is recorded in the capital account.
- When an Australian investor buys a bond issued in a foreign country, ceteris paribus, the balance on the financial account decreases.
- If the value of goods and services exported from Australia is smaller than the value of goods and services imported, then Australia's balance of payments will be in deficit
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