The table below shows the composition of exports and imports of a hypothetical country. Use the information in the table to answer the questions that follow...
Question 1 Report
The table below shows the composition of exports and imports of a hypothetical country. Use the information in the table to answer the questions that follow.
| Exports | Amount $ | Imports | Amounts $ |
| Crude Oil | 120,000,000 | Rice and Flour | 140,000,000 |
| Groundnuts | 40,000,000 | Petroleum Product | 80,000,000 |
| Tourism | 45,000,000 | Vehicles and Accessories | 50,000,000 |
| Shipping & Insurance | 60,000,000 | Banking Services | 60,000,000 |
| Bauxite | 80,000,000 | Freight and Insurance | 40,000,000 |
(a) Calculate the value of visible exports.
(b) Calculate the balance of trade for the country.
(c) List the items of invisible exports and imports.
(d) Calculate the current account balance of the country.
(e) Is the country developed or developing? Give one reason for your answer.
Answer Details
First we sort each item into visible (physical goods that cross the border) and invisible (services).
| Side | Visible (goods) | Invisible (services) |
|---|---|---|
| Exports | Crude Oil 120m, Groundnuts 40m, Bauxite 80m | Tourism 45m, Shipping & Insurance 60m |
| Imports | Rice and Flour 140m, Petroleum Product 80m, Vehicles and Accessories 50m | Banking Services 60m, Freight and Insurance 40m |
(a) Value of visible exports
\[ 120{,}000{,}000 + 40{,}000{,}000 + 80{,}000{,}000 = \$240{,}000{,}000 \]
(b) Balance of trade = visible exports \( - \) visible imports. Visible imports \( = 140m + 80m + 50m = \$270{,}000{,}000 \).
\[ 240{,}000{,}000 - 270{,}000{,}000 = -\$30{,}000{,}000 \]
A balance of trade deficit of \$30,000,000.
(c) Invisible items
- Invisible exports: Tourism and Shipping & Insurance.
- Invisible imports: Banking Services and Freight and Insurance.
(d) Current account balance = (visible + invisible exports) \( - \) (visible + invisible imports).
Total exports \( = 240m + (45m + 60m) = 345{,}000{,}000 \). Total imports \( = 270m + (60m + 40m) = 370{,}000{,}000 \).
\[ 345{,}000{,}000 - 370{,}000{,}000 = -\$25{,}000{,}000 \]
A current account deficit of \$25,000,000.
(e) The country is developing. Its exports are dominated by primary/unprocessed products (crude oil, groundnuts, bauxite) while it imports refined and manufactured goods (petroleum products, vehicles), which is the typical trade pattern of a developing economy.
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