Answer Happy

Problem 4. Balance of Payments. The table below is a summary of the balance of payments of Flo- rentonia Item Value of Item A. Current Account -1000 Goods: exports ??? Goods: imports -7000 Balance on Goods -2000 Services: credit 3500 Services: debit ??? Balance on Services 1500 Balance on Goods and Services ??? Primary Income: credit 100 Primary Income: debit -1200 Balance on Primary Income -1100 Balance on Goods, Services and Income -1600 Unilateral Transfers, net 600 B. Capital Account, net 400 C. Financial Account ??? Direct Investment Assets 0 Portfolio Assets 150 Other Investment Assets 1400 Reserve Assets -1200 Net Acquisition of Financial (Foreign) Assets Direct Investment Liabilities 400 Portfolio Liabilities 350 Other Investment Liabilities 250 Net Incurrence of Liabilities 1000 Financial Derivatives, net -100 Statistical Discrepancy -150 a) Recover the missing entries, indicated with "???". Explain how you compute them. (Hint: Carefully read page 301 of Sawyer Sprinkle where they explain that the item "Net Acquisition of Financial Assets" enters with opposite sign - similar to "Financial Derivatives, net”.) b) Consider the balance of payments of Florentonia. For each of the following transactions describe both entries into the appropriate category of the balance of payments (be specific for the Current account referring to the categories above). For each transaction, say whether the current account is affected. i) The PaperPencil company in Florentonia pays $ 100 in salary to an employee who is a citizen of Londratonia. ii) A foreigner buys a share of the PaperPencil company incorporated in Florentonia worth $ 10. iii) The central bank of Florentonia buys government bonds of Londratonia worth $ 200. iv) The PaperPencil corporation buys tables for its offices from a firm located in Londratonia and pays $ 1100 v) After a pandemic affects Florentonia, the government of Londratonia sends $2,000 worth of medical aid. 350