HOMEWORK #3 SUGGESTED SOLUTIONS 1. The Balance of Payments (16 points) Following gives some of the items in the US balance of payments in millions of dollars for the year 2003. Export of Goods: + 681,874, Export of Services: +292,233, Import of Goods -1,164,746, Import of Services: -227,399, Investment income, net: 2,542, Unilateral transfers, net -58,853 Using this information, please answer the questions below: a)What was the US balance of trade in 2003? Balance of trade: The value of merchandise exports – imports Balance of trade = $681,874 - $1,164,746 = - $482,872b)What was the US balance on goods and services in 2003? Balance on goods and services = Balance of trade (goods) + Balance of Services = - $482,872 + ($292,223 – $227,339) = - $418,038c)What was the US current account balance in 2003? Add net investment income and net unilateral transfers to the balance on goods and services to find the current account balance. Current account balance = Balance on goods and services + Net Investment Income + Net unilateral transfers = - $418,038 + $2,542 - $58,853 =- $474,349. d)What must have been the US financial account balance in 2003? It must be the same value with the opposite sign. Thus, US financial account balance must have been $474,349.
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