Assume that there are only three countries in the world: Amazonia, Babylonia and Carthaginia. Amazonia has...
Assume that there are only three countries in the world: Amazonia, Babylonia and Carthaginia. Amazonia has a current account deficit of 20 and Babylonia has a financial account surplus of 30.
a. Calculate Amazonia’s financial account and Babylonia’s current account.
b. Calculate Carthaginia’s financial account and current account.
Homework Answers
As per the Balance of Payments equation,
Current account deficit (surplus) = Financial account surplus (deficit).
Therefore,
(a)
Amazonia's Financial account = 20 (Surplus)
Babylonia's Current Account = - 30 (Deficit)
(b)
(1)
Carthaginia's financial account + Amazonia's Financial account + Babylonia's Financial account = 0.
Carthaginia's financial account = - (Amazonia's Financial account + Babylonia's Financial account) = - (20 + 30)
= - 50 (Deficit)
(2)
Carthaginia's current account + Amazonia's current account + Babylonia's current account = 0.
Carthaginia's current account = - (Amazonia's current account + Babylonia's current account) = - (- 20 - 30)
= 50 (Surplus)
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