Question 1

The balance of payments of a country summarises the economic transactions of an economy with the rest of the world.

Covidland released the following figures from its balance of payments accounts. In 2019 the country seemed to be doing well in terms of gains from trade.

Balance of Payment data for Covidland 2019

Merchandise Export 80

Merchandise Import 60

Services Exports 30

Services Imports 20

Investment income 10

Net transfer 20

Capital Inflows 20

Capital Outflows 80

Official Reserves 20

A. Use the information in the table above to calculate the following for Covidland

i. The balance of trade (1 mark)

ii. The current account balance (2 marks)

iii. The capital account balance (2 marks)

B. Discuss THREE (3) factors that can cause a current account surplus on the balance of payment account. (6 marks)

C. In 2020, COVID-19 wreaked havoc on the economies of small countries of Covidland. It had devastating consequences on the countries balance of payments. Propose THREE (3) measures that can be implemented by Covidland to correct a current account deficit.