a) The table below provides hypothetical data for a country's balance of payments. You can assume the balance on the capital account is zero

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Question (12 marks)

a) The table below provides hypothetical data for a country's balance of payments. You can assume the balance on the capital account is zero. 

Account                                                                  Billions of Dollars

Exports of Goods                                                                          $1280

Imports of Goods                                                                        -$850

Exports of Services                                                                       $320

Imports of Services                                                                      -$210

Income received on investment                                                 $120

Overseas medical aid                                                                   -$90

Increase in foreign holdings of assets                                       $1450

Increase in holdings of assets in foreign countries               -$2010

Using the above data calculate the following: (8 marks)

  1. The balance of trade on goods and services
  2. The balance on the current account
  3. The balance on the financial account
  4. Net errors and omissions (if any)

b) State whether each of the following statements is true or false, and briefly explain why. (4 marks)

  1. The major difference between an open economy and a closed economy is that an open economy is a market economy while a closed economy relies on central planning.
  2. When Australia sends money to the Philippines to help typhoon survivors, the transaction is recorded in the capital account.
  3. When an Australian investor buys a bond issued in a foreign country, ceteris paribus, the balance on the financial account decreases.
  4. If the value of goods and services exported from Australia is smaller than the value of goods and services imported, then Australia's balance of payments will be in deficit

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