A country has imports of goods and services of $2,000 billion. The interest paid to the rest of the world is $500 billion. The interest received from the rest of the world is $400 billion. The decrease in official reserves is $10 billion. The government sector balance is $200 billion, saving is $1,800 billion, investment is $2,000 billion, and net transfers is zero. What is the current account balance?

Question

Quizplus · Accepted Answer

The current account balance can be calculated as the sum of the trade balance (exports minus imports), net income from abroad (interest received minus interest paid), and net transfers from abroad. In this case, the trade balance is not directly given, but we can infer it from the information provided about savings, investment, and the government sector balance. The formula for the current account balance (CAB) in this context is CAB = (Savings - Investment) + (Interest Received - Interest Paid) + Net Transfers + Government Sector Balance. Plugging in the numbers: CAB = (1800 - 2000) + (400 - 500) + 0 + 200 = -200 - 100 + 200 = -$100 billion. The decrease in official reserves is not directly part of the current account calculation but indicates a need to finance a deficit, which is consistent with a negative current account balance.

A Country Has Imports of Goods and Services of $2,000