Problem

1. Why has the goods and services balance sometimes shown a surplus while the merchandise trade balance shows a deficit?

2. What does the balance of international indebtedness measure? How does this statement differ from the balance of payments?

3. Indicate whether each of the following items represents a debit or a credit on the U.S. balance of payments:

a. A U.S. importer purchases a shipload of French wine.

b. A Japanese automobile firm builds an assembly plant in Kentucky.

c. A British manufacturer exports machinery to Taiwan on a U.S. vessel.

d. A U.S. college student spends a year studying in Switzerland.

e. U.S. charities donate food to people in drought-plagued Africa.

f. Japanese investors collect interest income on their holdings of U.S. government securities.

g. A German resident sends money to her relatives in the United States.

h. Lloyds of London sells an insurance policy to a U.S. business firm.

I. A Swiss resident receives dividends on her IBM stock.