The extract from a country’s balance of payments account is shown below. Item Import ($ million) Export ($ million) Agricultural products ------ 200 Mineral...

Answer Details

(a) The balance of trade is the difference between a country's exports and imports of goods. In this case, the exports of goods are $525 million ($200 million from agricultural products and $325 million from mineral products) and the imports of goods are $335 million ($250 million from consumer goods and $85 million from transportation). Thus, the balance of trade is:

$525 million (exports of goods) - $335 million (imports of goods) = $190 million

Therefore, the balance of trade is $190 million.

(b) The invisible trade balance is the difference between a country's earnings and expenditures from services, such as banking and insurance. In this case, the earnings from insurance are $25 million and the expenditures are $50 million, resulting in a deficit of $25 million. The earnings from banking are $30 million and the expenditures are $75 million, resulting in a deficit of $45 million. Thus, the invisible trade balance is:

$25 million (earnings from insurance) - $50 million (expenditures on insurance) + $30 million (earnings from banking) - $75 million (expenditures on banking) = -$70 million

Therefore, the invisible trade balance is a deficit of $70 million.

(c) The balance on current account is the sum of the balance of trade and the invisible trade balance. In this case, the balance of trade is $190 million and the invisible trade balance is a deficit of $70 million. Thus, the balance on current account is:

$190 million (balance of trade) - $70 million (invisible trade balance) = $120 million

Therefore, the balance on current account is a surplus of $120 million.