Double Entry Bookkeeping:

The goal of this exercise is to get some practice on the workings of the principle of double entry bookkeeping, as well as to get acquainted with the international accounts.

1. Balance of Payments.

Consider the following table and answer the following questions. (Note balance of payments has three accounts: current, financial and capital. We have omitted capital here because it is insignificantly small for the U.S.

Table 1: An Approximate Balance of Payments Accounts of the US in 2012.

a. What was trade balance in this country? What does it mean in words?

b. How much was Private Remittances? What is an explanation (story) for the sign of this quantity?

c. Suppose capital account (KA) is equal to $10 billion, how much Financial Accounts (FA) have been?

d. How much was Net Export of US Assets? If a Chinese firm bought the empire state buildings for $1 billion, how would this transaction affect the Financial Accounts? How about current accounts?

2. Let's do a few more exercise on the balance of payments. Discuss in each case of the impact of the event on the US balance of payments. (Recall that each transaction gives rise to two entries in the Balance-of-Payments Accounts.)

a. An American university buys Several park benches from Spain and pays with a $120,000 check.

b. A French consumer imports $30 million worth of American blue jeans and pays with a check drawn on a U.S. bank in New York.

c. A US firm issues equity worth $1 million, through a US Bank. $500,000 is bought by a Brazilian hedge fund, and paid for through a Brazilian bank. The rest is bought by a Belgian pension fund, and paid for through a Belgian bank.

d. The United States forgives debt of $500,000 to Nicaragua.