Ch.10 International Trade and Capital Flows Problem 1 is adapted from Ch.10 problem 43.

1. (Section 10.1) In 2001, the United Kingdom's economy

• exported goods worth 192 billion and services worth another 77 billion,
• imported goods worth 225 billion and services worth 66 billion,
• receipts of income from abroad were 140 billion,
• income payments going abroad were 131 billion,
• Government transfers from the United Kingdom to the rest of the world were 23 billion,
• various U.K non-profit organizations received gift donations of 16 billion from the rest of the
• world.

A) (2 points) Calculate the U.K. merchandise balance.

B) (2 points) Calculate the U.K. trade balance.

C) (2 points) Calculate the current account balance.

D) (2 points) Explain how you decided whether payments on foreign investment and government transfers counted on the positive or the negative side of the current account balance for the United Kingdom in 2001.

(Section 10.4) Saving and Investment Identity Problem 2 is adapted from ch.10 problem 44.

2. Imagine that the U.S. economy finds itself in the following situation:

• a government budget deficit of $100 billion,
• total domestic savings of $1,500 billion, and
• total domestic physical capital investment of $1,600 billion.

A) (2 points) According to the national saving and investment identity, what will be the current account balance? Is it a trade deficit or trade surplus? Will international capital flow in or flow out?

B) (2 points) What will be the current account balance if investment rises by $50 billion, while the budget deficit and national savings remain the same?

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In case you need these:

43.In 2001, the United Kingdom's economy exported goods worth 192 billion and services worth another 77 billion. It imported goods worth 225 billion and services worth 66 billion. Receipts of income from abroad were 140 billion while income payments going abroad were 131 billion. Government transfers from the United Kingdom to the rest of the world were 23 billion, while various U.K government agencies received payments of 16 billion from the rest of the world.

1. Calculate the U.K. merchandise trade deficit for 2001.
2. Calculate the current account balance for 2001.
3. Explain how you decided whether payments on foreign investment and government transfers counted on the positive or the negative side of the current account balance for the United Kingdom in 2001.

44.Imagine that the U.S. economy finds itself in the following situation: a government budget deficit of $100 billion, total domestic savings of $1,500 billion, and total domestic physical capital investment of $1,600 billion. According to the national saving and investment identity, what will be the current account balance? What will be the current account balance if investment rises by $50 billion, while the budget deficit and national savings remain the same?