Question

Can anyone please help me with this question?? Here are the abbreviations...

CA: Current Account

KA: Capital Account

NUT: Net Unilateral Transfers

TB: Trade Balance

C: Consumption(personal consumption expenditures)

G: Government Consumption(government expenditures)

GNE: Gross National Expenditure

Question 3) Use the following data on the hypothetical economy to answer the following questions: CA: $5000 million C: $3000 million KA: $100 million G: $1000 million NUT: $50 million GNE: $7000 million TB: $800 million نه ف What is the financial account balance in this country? Do foreign purchases of domestic assets exceed domestic purchases of foreign assets? Calculate net factor income from abroad. Is this country a net lender or net borrower? Explain how you arrived to this conclusion. ن و

Answer 1

a) GNE = GNDI+ FA + KA

= ( GNE+CA) + FA +KA

7000 = 7000+5000+FA+100

FA = -5000-100

FA. = $ (5100). { ( ) Denotes negative amount }

Therefore the FINANCIAL ACCOUNT BALANCE in the country is $ (5100)million i.e in negative amount

b) Yes, foreign purchase of domestic assets exceed domestic purchase of foreign assets. This is because FA is broken in 2 sub components i.e FA= Foreign purhase of domestic assets+ domestic purchase of foreign assets.

• Increase in foreing purchase of domestic assets decreases financial account .
• Increase in domestic purchase of assets increases financial account.

Negative FA means higher foreign ownership of domestic assets.

c)  To calculate net factor income from abroad ( NFIA)

CA = TB + NFIA + NUT

5000= 800+NFIA+50

5000-850 = NFIA

NFIA. =$ 4150 million Ans NEt Factor Income from abroad

d) We can make out if the country is net borrower or net lender by comparing expenditures and income/revenue

GDP= GNE + TB

= 7000+800=$7800 million

GNI = GDP+NFIA

= 7800+4150

= $11,950 million

Net Lending/ Net Borrowing = GNI - GNE

= 11,950 - 7000

= $4,950 million

Therefore, the country is a net lender as the income is more than expenditure i.e we have a positive balance in above calculation.