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Difficulty: EasyBalance of Payments Disequilibrium and Adjustment Measures

Country Y recorded visible exports of $600 million\$600\text{ million} and visible imports of $850 million\$850\text{ million} during a financial year. Its invisible exports (services rendered abroad) totaled $250 million\$250\text{ million}, while its invisible imports (services received) stood at $100 million\$100\text{ million}. What is Country Y's current account balance in millions of dollars? (Note: Express a deficit as a negative value, e.g., -100).

Answer: -100 million USD

Answer

The current account balance is −$100 million-\$100\text{ million} (a current account deficit of $100 million\$100\text{ million}).
The Current Account balance combines net visible trade (goods) and net invisible trade (services). Net visible trade is $600 million−$850 million=−$250 million\$600\text{ million} - \$850\text{ million} = -\$250\text{ million} (a trade deficit). Net invisible trade is $250 million−$100 million=+$150 million\$250\text{ million} - \$100\text{ million} = +\$150\text{ million} (a services surplus). Adding these yields −$250 million+$150 million=−$100 million-\$250\text{ million} + \$150\text{ million} = -\$100\text{ million}, representing a overall Current Account deficit of $100 million\$100\text{ million}.

Step-by-Step Solution

1
Calculate the visible trade balance (Balance of Trade).
Visible balance = $600 million−$850 million=−$250 million\$600\text{ million} - \$850\text{ million} = -\$250\text{ million}.
Visible trade balance equals earnings from visible exports minus payments for visible imports.
2
Calculate the invisible trade balance.
Invisible balance = $250 million−$100 million=+$150 million\$250\text{ million} - \$100\text{ million} = +\$150\text{ million}.
Invisible balance equals receipts from services rendered abroad minus payments for services received.
3
Combine visible balance and invisible balance to get the Current Account balance.
Current Account Balance = −$250 million+$150 million=−$100 million-\$250\text{ million} + \$150\text{ million} = -\$100\text{ million}.
The Current Account comprises both the trade balance in visible goods and the balance on invisible services and transfers.

Key Concept

Current Account Balance Calculation in Balance of Payments
Estimated Time:1m 0s
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Topics

Balance of Payments Disequilibrium and Adjustment Measures

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