Chapter 10: Q 41. (page 267)
Will nations that are more involved in foreign
trade tends to have higher trade imbalances, lower trade imbalances, or is the pattern unpredictable?
Actually, pattern of trade is incalculable.
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Why does the trade balance and the current account balance track so closely together over time?
Many think that the size of a trade deficit is due
to a lack of competitiveness of domestic sectors, such as autos. Explain why this is not true.
In 2001, the United Kingdom's economy exported
goods worth £192 billion and services worth another £77 billion. It imported goods worth £225 billion and services worth £66 billion. Receipts of income from abroad were £140 billion while income payments going abroad were £131 billion. Government transfers from the United Kingdom to the rest of the world were £23 billion, while various U.K government agencies received payments of £16 billion from the rest of the world.
a. Calculate the U.K. merchandise trade deficit for
2001.
b. Calculate the current account balance for 2001.
c. Explain how you decided whether payments on
foreign investment and government transfers
counted on the positive or the negative side of
the current account balance for the United
Kingdom in 2001.
Explain the relationship between a current account deficit or surplus and the flow of funds.
What are the two main sides of the national savings and investment identity?
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