Kelmora's national statistics agency has published the following current account data for last year (all figures in US$ million). A negative figure indicates a net outflow of income (more paid abroad than received); a positive figure indicates a net inflow. Component US$ million…

Answer: ((a)) Balance of trade in goods =8200-9650=-1450, i.e. a deficit of US$1,450 million; balance of trade in services =3100-2400=+700, i.e. a surplus of US$700 million ((b)) Balance of trade in goods and services =-1450+700=-750, i.e. a deficit of US$750 million ((c)) Current account balance =-750+(-450)+180=-1020, i.e. Kelmora's current account is in a deficit of US$1,020 million ((d)) One possible cause is that Kelmora's imports of goods substantially exceed its exports of goods (for example because rising domestic incomes are pulling in more imported goods, or domestically produced goods are less price-competitive than foreign alternatives), and this large g…. Part (a): Balance of trade in goods and services separately Balance of trade in goods = exports of goods - imports of goods: 8200 - 9650 = -1450 So Kelmora has a deficit of US$1,450 million on trade in goods. Balance of trade in services =…

AS Level Economics 9708: Calculating a Current Account Balance (Deficit)

Component	US$ million
Exports of goods	8,200
Imports of goods	9,650
Exports of services	3,100
Imports of services	2,400
Net primary income	-450
Net secondary income	+180

Component

US$ million

Exports of goods

8,200

Imports of goods

9,650

Exports of services

3,100

Imports of services

2,400

Net primary income

-450

Net secondary income

+180

Part (a): Balance of trade in goods and services separately

Balance of trade in goods $=$ exports of goods $-$ imports of goods: $8200 - 9650 = -1450$ So Kelmora has a deficit of US$1,450 million on trade in goods.

Balance of trade in services $=$ exports of services $-$ imports of services: $3100 - 2400 = 700$ So Kelmora has a surplus of US$700 million on trade in services.

Part (b): Balance of trade in goods and services combined

Adding the two balances from part (a): $-1450 + 700 = -750$ Combined, Kelmora has an overall deficit of US$750 million on trade in goods and services together. The goods deficit is larger than the services surplus.

Part (c): Current account balance (CAB)

The current account balance sums all four components of the current account: trade in goods, trade in services, primary income and secondary income. Using the trade in goods and services total from part (b), and the already-signed net income figures: $CAB = -750 + (-450) + 180 = -1020$

So Kelmora’s current account balance is $-1020$ , i.e. US$1,020 million, a deficit. The goods deficit is only partly offset by the services surplus and the secondary income inflow, and is made worse by the outflow on primary income.

Part (d): A possible cause of the deficit

One plausible cause is that Kelmora’s residents and firms are spending heavily on imported goods (perhaps because rising domestic incomes have increased demand for foreign products, or because goods made in Kelmora are less price-competitive than imported alternatives) so import spending on goods (US$9,650 million) substantially exceeds export revenue from goods (US$8,200 million). This large goods deficit is then reinforced rather than offset: the net outflow of primary income (US$450 million) suggests that profits earned by foreign-owned firms operating in Kelmora and repatriated abroad exceed the income Kelmora’s own residents earn on assets held overseas. Together, these two effects outweigh the smaller surplus on services and the modest secondary income inflow, leaving the current account as a whole in deficit.

Final answers

(a) Balance of trade in goods $=$ −US$1,450 million (deficit); balance of trade in services $=$ +US$700 million (surplus)
(b) Balance of trade in goods and services $=$ −US$750 million (deficit)
(c) Current account balance $=$ −US$1,020 million, a deficit
(d) A goods deficit driven by strong import demand and/or weak export competitiveness, reinforced by a net outflow of primary income