Review the following concepts.
(a) Current Account Balance = Trade Balance
+ Income Balance
+ Net Unilateral Transfers.
• Trade Balance = Merchandise Trade Balance
+ Services Balance.
• Income Balance = Net Investment Income
+ Net International Compensation to Employees.
(b) Financial Account = Increase in Foreign-Owned Assets in Home Country
− Increase in Home-Owned Assets Abroad.
Answer: Go over the current account definition. Use your own words to ex-
plain each term. For example:
• Merchandise trade balance: The export of bananas – the import of bananas.
• Service balance: The export of hotel services for foreign visitors – import of
hotel services for Aussie travelers.
• Net investment income: The returns to your foreign stocks held.
• Net international compensation to employees: Salaries for Australians who
work at a foreign company such as Amazon.
• Net unilateral transfer: Money from your parents transferred to your bank
account in Australia as gift.
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ECON 7520 SEMESTER 1, 2023
Describe how each of the following transactions affects the Australian Balance
of Payments.
(a) An Australian university buys several park benches from Spain and pays with
a $120,000 check.

(b) An Australian resident buys $5,000 worth of British Airlines stock, paying
with Australian dollars.

(c) A French consumer imports an Australian wool jacket for $200 and pays with
a check drawn on an Australian bank in Melbourne.

(d) An Australian company sells a subsidiary in Australia to another Australian
company and with the proceeds (1 million dollars) buys a French company.

(e) A group of Australian friends travels to Fiji and rents a vacation home for $2,500. They pay with a Australian credit card.

(f) Australia sends medicine, blankets, tents, and nonperishable food worth 400
million dollars to victims of an earthquake in a foreign country.