AP® Macroeconomics · Free response

Balance of payments entries: the current account and the capital and financial account

write it first, then score yourself point by point

Short free-response question · four-function calculator · 5 points · about 12 minutes

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The question

Name: ______________________   Date: ____________   Balance of payments entries: the current account and the capital and financial account (5 points)

Data

Arland's transactions with the rest of the world

The table shows entries in the balance of payments of Arland, an invented country, for one year. Positive numbers are money received by Arland residents; negative numbers are money paid by them.

Arland's balance of payments entries, billions of arls (invented data)
EntryBillions of arls
Exports of goods240
Imports of goods-310
Exports of services90
Imports of services-60
Net income from abroad-10
Net transfers-20
Arland residents' purchases of foreign assets-70

  1. (A) Calculate Arland's current account balance. Show your work. [1 point]

  2. (B) Identify Arland's capital and financial account balance, and state whether it is a surplus or a deficit. [1 point]

  3. (C) Explain why the current account balance and the capital and financial account balance must sum to zero. [1 point]

  4. (D) Calculate the value of Arland assets bought by foreign residents during the year. Show your work. [1 point]

  5. (E) Suppose instead that Arland's exports of services had been 20 billion arls higher, with every other current account entry unchanged. What would Arland's capital and financial account balance have been? [1 point]