Assignment:
Part 1
Summarize the major accounts in the balance of trade, and explian how they balance out.
1. (Balance of Payments) The following are hypothetical data for the U.S. balance of payments. Use the data to calculate each of the following:
a. Merchandise trade balance
b. Balance on goods and services
c. Balance on current account
d. Financial account balance
e Statistical discrepancy
Billions of Dollars
Merchandise exports 350.0
Merchandise imports 2,425.0
Service exports 2,145
Service imports 170
Net income and net transfers 221.5
Change in U.S.-owned assets abroad 245.0
Change in foreign-owned assets in U.S. 100.0
2. (Balance of Payments) Explain where in the U.S. balance of payments an entry would be recorded for each of the following:
a. A Hong Kong financier buys some U.S. corporate stock.
b. A U.S. tourist in Paris buys some perfume to take home.
c. A Japanese company sells machinery to a pineapple company in Hawaii.
d. U.S. farmers gave food to starving children in Ethiopia.
e. The U.S. Treasury sells a bond to a Saudi Arabian prince.
f. A U.S. tourist flies to France on Air France.
g. A U.S. company sells insurance to a foreign firm.
Part 2
Summarize five arguments often used to justify trade restrictions, and describe some unintended consequences of protecting certain industries from international competition
1. (Arguments for Trade Restrictions) Explain the national defense, declining industries, and infant industry arguments for protecting a domestic industry from international competition.
2. (Arguments for Trade Restrictions) Firms hurt by lower priced imports typically argue that restricting trade will save U.S. lobs. What's wrong with this argument? Are there ever any reasons to support such trade restrictions?