Question

1. Each of the following events will result in either an import or export to be recorded in the current account or the capital account of Vidinland, an imaginary small country in eastern Europe. For each one, say whether it will be a current account import, a current account export, a capital account inflow, or a capital account outflow.

****PLEASE DO NOT COPY ANSWER FROM ANOTHER POST******

A. Boyan, a prominent resident of Vidinland, purchases a brand new Swedish automobile.

B. Pete, a resident of the U.S., purchases 1,000 cases of fine wine from Vidinland.

C. U.S. residents Allen and Elizabeth go on a bike tour of Vidinland, spending money on hotels, food, and tires.

D. Investors from the U.S. purchase several kashkaval factories in Vidinland.

E. Due to the high quality of the kashkaval produced in Vidinland, the investors from part D receive very large profits.

Answer 1

Balance of payment has following accounts:

Current account: Which has following sub accounts: a. Goods b. Services. C. Incomes and D. transfers.

Capital account: For Foreign direct investment, Foreign portfolio investments and reserve assets.

Errors and omissions: For temporary adjustments in data.

A. Boyan, a prominent resident of Vidinland, purchases a brand new Swedish automobile: It is export of good from Vidinland It is debit in goods account on current account.

B. Pete, a resident of the U.S., purchases 1,000 cases of fine wine from Vidinland.: It is export of good from Vidinland. It is credit in goods account on current account.

C. U.S. residents Allen and Elizabeth go on a bike tour of Vidinland, spending money on hotels, food, and tires.: It is credit on services account of Vidinland as it is considers export of services(It brings money in Vidinland)

D. Investors from the U.S. purchase several kashkaval factories in Vidinland.: This is credit in Foreign direct investment in Financial accounts.

E. Due to the high quality of the kashkaval produced in Vidinland, the investors from part D receive very large profits.

This is debit on current account as this money will transferred to US as investment income.