Q. 4 Determine if each of the followi... [FREE SOLUTION]

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Chapter 33: Q. 4 (page 753)

Determine if each of the following items results in a surplus or deficit in the current account of the balance of payments.
a. A Central European corporation offers products to a chain of hobby stores in the United States.
b. Japanese citizens pay a U.S. travel agency to arrange hotel accommodations, ground transportation, and tours of many U.S. cities, including New York, Chicago, and Orlando.
c. A Mexican corporation hires an accounting firm in the United States to audit its financial accounts.
d. Following a severe earthquake in Pakistan, churches and mosques in the United States contribute humanitarian aid to the country.
e. A Canadian corporation supplies raw materials to a US microprocessor maker.

Short Answer

Expert verified

Each of the given items results in surplus or deficit in the current account of the balance of payments.

Step by step solution

introduction

Current account surpluses and deficits in the US balance of payments:

a. A deficit is created by a central European corporation supplying products to a US hobby-store chain.

Japanese citizens pay a U.S. travel agency

b. Japanese residents paying a US travel business to arrange hotel stays, ground transportation, and tours of several US locations, such as New York, Chicago, and Orlando, results in a surplus item in the US balance of payments current account.

A Mexican corporation hires an accounting firm in the United States

c. A Mexican corporation that pays a US accounting firm to audit its financial statements generates a surplus item in the US balance of payments current account.

Following a severe earthquake in Pakistan

d. Relief aid sent to Pakistan by American churches and mosques in the aftermath of a severe earthquake in that country results in a current account deficit in the US balance of payments.

Supplies raw materials

e. A purchase of raw materials by a US microprocessor manufacturer from a Canadian firm results in a current account deficit in the US balance of payments.