1. Use the following information on a hypothetical economy, Woodfordia, for the year 2012: Table 1: BOP and NIPA data

Balance of Payments Accounts

Current account surplus of $1 billion Nonreserve financial account deficit of $850 million

Earnings of $150 million for foreign factors located in Woodfordia

Trade surplus of $700 million

Net of +$50 million in unilateral transfers

National Income and Product Accounts

GNE of $8 billion ($8,000 million) Consumption of $5 billion ($5,000 million)

A $250 million government budget deficit

Capital account surplus of $75 million Total government purchases

of $1.1 billion ($1,100 million)

Note: The financial account (FA) is sometimes defined as the sum of the nonreserve financial account (FANR) and the official settlements balance (OSB): FA = FANR + OSB. See section Understanding the Data for the Balance of Payments Account in chapter 5 for a brief discussion of this distinction.

(a) Calculate Woodfordias financial account balance. What has happened to Woodfordias foreign asset position? Explain in detail in terms of Woodfordian assets and foreign assets (owned by Woodfordians and foreigners).

(b) Calculate the official settlements balance for Woodfordia. Did the central bank of Woodfordia experience a decrease or an increase in its foreign reserve holdings? Explain this in terms of the figure you calculated and what the official settlements balance measures.

(c) Calculate net factor income from abroad for Woodfordia. How much did Woodfordian factors abroad earn?

(d) Is Woodfordia a net lender or a net borrower? Explain how you know.