Retrieve the most recent World Economic Outlook (WEO) from the website of the In
ID: 1207246 • Letter: R
Question
Retrieve the most recent World Economic Outlook (WEO) from the website of the International Monetary Fund. In the Statistical Appendix, find the table titled "Balances on Current Account" which lists current account balances around the world. Use the data from the most recent year available to answer A through C.
Link: http://www.imf.org/external/pubs/ft/weo/2015/01/pdf/text.pdf
(Tables A 9 and A 10)
A)The sum of current account balances should equal zero. What does this sum actually equal? Why does this sum indicate some mismeasurement? (i.e. if the sum were correct, what would it imply)?
B) What are 2 countries that are borrowing? What are 2 countries that are lending?
C) Compare the U.S. current account balance to the current account balances of the other advanced economies. Is the United States borrowing only from advanced economies?
Explanation / Answer
A) The current account balance is defined by the sum of the value of imports of goods and services plus net returns on investments abroad, minus the value of exports of goods and services, where all these elements are measured in the domestic currency.
A positive current account balance indicates that the nation is a net lender to the rest of the world, while a negative current account balance indicates that it is a net borrower from the rest of the world. A current account surplus increases a nation’s net foreign assets by the amount of the surplus, and a current account deficit decreases it by that amount. The current account and the capital account are the two main components of a nation’s balance of payments.
B) US and UK are borrowing among large economies as they have negative current account balance. Germany and Russia has surplus in current account, it means they are lending.
C) Calculations of US current account deficit doesn't exactly match so we can conclude that US is not borrowing only from advanced economies and it could include emerging economies also.
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