Assignment:
Short-Answer and Algebraic Questions: (The numbers in square brackets give the breakdown of the points for various parts of each question. To receive full credit, please explain your answers.)
1. This question is based on the article, "China's vanished current-account surplus will change the world economy," published by The Economist on May 17, 2018. For your convenience, the article is copied below. The article reports that China's current account balance, which had been positive and typically large between 2004 and 2017, turned negative in the first quarter of 2018. It then explores the reasons for this change. It should be kept in mind that the article does not mention the balance in unilateral transfers because it is negligible in the case of China.
(a) Based on the discussion and the data presented in the article, what were the trends in China's balance of trade in goods between 2011 and 2018?
(b) Based on the discussion and the data presented in the article, what were the trends in China'sbalance of trade in services between 2011 and 2018? What factor is likely to have been the main driver of those trends?
(c) Does the data presented in the article indicate a clear trend in China's factor income balance between 2011 and 2018? Has that balance been on average positive or negative during those years?
(d) Based on the data presented in the article, was the sharp drop in the current balance in the first quarter of 2018mainly due to a drop in the services trade balance,the goods trade balance, or some other component.
(e) According to the article, China's current account balance has declined in 2016-2018, when compared to 2014-2015. What does this tell us about the trend in the savings rate in China between those two periods? How can one deduce this trend from the data and discussions in the article despite the absence of consistent data on savings?
(f) The article points out that "if China's current-account deficits become more frequent, it will have to run down its foreign assets or borrow more from abroad." Why is this the case? What is the relationship of current account balance with the changes in a country's foreign asset (official reserves) holdings and its borrowing abroad (non-reserve assets) transactions.
Attachment:- China’s vanished current-account surplus.rar