Chapter 23, Problem 43P

In 2001, the United Kingdom’s economy exported goods worth $\pounds \text{192}$ billion and services worth another $\pounds \text{77}$ billion. It imported goods worth $\pounds \text{225}$ billion and services worth £66 billion. Receipts of income from abroad were $\pounds \text{14}0$ billion while income payments going abroad were $\pounds \text{131}$ billion. Government transfers from the United Kingdom to the rest of the world were $\pounds \text{23}$ billion, while various U.K government agencies received payments of $\pounds \text{16}$ billion from the rest of the world.

1. Calculate the U.K. merchandise trade deficit for 2001.
2. Calculate the current account balance for 2001.
3. Explain how you decided whether payments on foreign investment and government transfers counted on the positive or the negative side of the current account balance for the United Kingdom in 2001.