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Chapter 10: Q. 9 (page 265)

How does the bottom portion of Figure 10.3, showing the international flow of investments and capital, differ from the upper portion?

Short Answer

Expert verified

Bottom is the investment flow and the top is goods & services exchange.

Step by step solution

01

Step1. Given Information

Given information is the following flow diagram:

02

Step2. Explanation

The bottom part of the diagram, i.e. the one which talks about the flow foreign investment, investment income received, investment income paid and the investment from abroad, these all flows are related to the flow of investment income, i.e. these are the capital inflows and outflows.

The top part of the flow diagram talks about exports and imports and their related payments, which is more about the trade part. It talks of the trade of goods and services and attached movement of the money in form of income received and payments made.

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Most popular questions from this chapter

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.

What is the difference between trade deficits and balance of trade?

Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy.

a. Living in an especially large country

b. Having a domestic investment rate much higher than the domestic savings rate

c. Having many other large economies geographically nearby

d. Having an especially large budget deficit

e. Having countries with a tradition of strong protectionist legislation shutting out imports

What determines the size of a country’s trade deficit?

Will nations that are more involved in foreign

trade tends to have higher trade imbalances, lower trade imbalances, or is the pattern unpredictable?
See all solutions

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