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Current account - short answer


Question 1

Explain the factors which are likely to affect a country's balance of payments on current account.

Question 2

Explain the possible effects of an increase in a country's level of interest rates on its balance of payments.

Question 3

Identify the components of the Canadian current account that will be affected by each of the following transactions, and calculate the net effect on their invisible balance of the balance of payments.

(a) a tourist from Spain spends $800 in Canada
(b) a multinational company operating in Canada makes $20,000 profit and sends this to Sweden
(c) a large corporation located in France pays interest of $55,000 on a loan from a Canadian bank

Question 4

The following information shows the income elasticity of demand for imports in three countries:

Country Income elasticity of demand for imports
A 6.0
B 4.0
C 0.6

(a) Explain the term 'income elasticity of demand'.

(b) According to the figures for income elasticity, and assuming that exports stay constant, calculate which country will experience the biggest improvement in their balance of payments on current account from a recession.