Question

An economy has a trade surplus of 25 billion dollars and an overall current account deficit of 47 billion dollars. What will be the balance of invisibles for this economy?

• A. A surplus of 72 billion dollars
• B. A surplus of 22 billion dollars
• C. A deficit of 22 billion dollars
• D. A deficit of 72 billion dollars

Answer 1

The Correct Option is C

The balance of invisibles = current account deficit – trade surplus = 47 – 25 = 22 billion dollars deficit.

Answer 2

The balance of invisibles is calculated by subtracting the trade surplus from the current account deficit. In this case, the formula is:

Balance of invisibles = current account deficit – trade surplus

Substituting the given values:

47 billion dollars (current account deficit) – 25 billion dollars (trade surplus) = 22 billion dollars deficit.

Therefore, the balance of invisibles shows a deficit of 22 billion dollars, indicating that the inflows from services, income, and transfers are not sufficient to offset the outflows from the goods trade. This deficit can be a concern for the overall balance of payments and might require adjustments in policies related to external trade and capital flows.