ECN 306 Final Exam Questions with
Solved Solutions 2026-2027 Updated.
Two types of Balance of Payments - Answer 1.) Current Account
2.) Financial Account
4 Types of Transactions within the Current Account - Answer 1.) Merchandise Goods = Exports
(+) Imports (-)
2.) Services= Foreign tourism in domestic country, foreign purchase of services, and royalty
payment to U.S. entity (+). The reverse of the above is (-)
3.) Income- Income owed from domestic owned assets (+). Income earned by foreign assets
located domestically (-)
4.) Net Transfers- Foreign official aid and private transfers (-).
Current Account Balance= - Answer -(Increase in country's foreign financial assets-Increase in
foreign financial liabilities.)
-(Domestic Exports-Domestic Imports)
-(Income owed from domestic asset-Income earned by foreign asset located domestically)
- (-foreign aid)
Financial Accounts inlcude - Answer -Private transactions and foreign official transactions
- (+) records increase in holdings, in foreign holdings and domestic assets.
- (-) Records increased domestic holdings of foreign assets.
If NX<0 - Answer C.A<0
Formula for Gross Domestic Product - Answer Consumption (C)+Investment(I)+Government
Spending(G)+ Net Export (NX)= GDP
Income formula - Answer Consumption (C)+Savings (S)+Taxes(T)=Income (I)
If GPD=Income then, - Answer NX=S+T-G-I
Formula for National Savings - Answer =S+T-G
, A country's net foreign investment can be calculated by - Answer finding the difference
between national savings and domestic investment.
Current Account Deficit - Answer I>S+T+I, Real Capital Imports
Current Account Surplus - Answer I< S+T+I-G, Real Capital Exports
Increase Demand for Euros (Rightward shift in Demand Curve) - Answer Actual Changes:
-Rise in Yu.s.--> Buy more of all goods.
-Rise in Pu.S.--> Shift from demand for domestic goods to a shift in the demand for European
goods.
-Fall in P eur-->Shift from demand for domestic goods to a shift in the demand for European
goods.
-Fall in I u.s.--> Shift to European Assets
Expected Changes:
-Fall in expected i u.s.
-Rise in expected Y euro
-Rise in expected e(usd/euro) (Dollar depreciation)
Increase in the Supply of Euros - Answer Actual Change:
-Rise in Y euro--> Europeans buy more of all goods
-Fall in P us--> Europeans shift from domestic goods to U.S.
-Rise in P eur- Europeans shift from domestic goods to U.S. goods.
-Rise in I us relative to I eur--> Europeans shift to U.S. assets.
Expected Change:
-Rise in expected Y us-->U.S. equities more attractive
-Fall in expected Y euro--> Europeans equities less attractive
-Fall in expected e(usd/eur)--> USD expected to appreciate.
Foreign Exchange - Answer The act of trading different nations moneys (currency) or holdings
of foreign currency.
Exchange Rate - Answer The price of one currency in terms of another.
Spot Rate - Answer Value of currency at specific date
Solved Solutions 2026-2027 Updated.
Two types of Balance of Payments - Answer 1.) Current Account
2.) Financial Account
4 Types of Transactions within the Current Account - Answer 1.) Merchandise Goods = Exports
(+) Imports (-)
2.) Services= Foreign tourism in domestic country, foreign purchase of services, and royalty
payment to U.S. entity (+). The reverse of the above is (-)
3.) Income- Income owed from domestic owned assets (+). Income earned by foreign assets
located domestically (-)
4.) Net Transfers- Foreign official aid and private transfers (-).
Current Account Balance= - Answer -(Increase in country's foreign financial assets-Increase in
foreign financial liabilities.)
-(Domestic Exports-Domestic Imports)
-(Income owed from domestic asset-Income earned by foreign asset located domestically)
- (-foreign aid)
Financial Accounts inlcude - Answer -Private transactions and foreign official transactions
- (+) records increase in holdings, in foreign holdings and domestic assets.
- (-) Records increased domestic holdings of foreign assets.
If NX<0 - Answer C.A<0
Formula for Gross Domestic Product - Answer Consumption (C)+Investment(I)+Government
Spending(G)+ Net Export (NX)= GDP
Income formula - Answer Consumption (C)+Savings (S)+Taxes(T)=Income (I)
If GPD=Income then, - Answer NX=S+T-G-I
Formula for National Savings - Answer =S+T-G
, A country's net foreign investment can be calculated by - Answer finding the difference
between national savings and domestic investment.
Current Account Deficit - Answer I>S+T+I, Real Capital Imports
Current Account Surplus - Answer I< S+T+I-G, Real Capital Exports
Increase Demand for Euros (Rightward shift in Demand Curve) - Answer Actual Changes:
-Rise in Yu.s.--> Buy more of all goods.
-Rise in Pu.S.--> Shift from demand for domestic goods to a shift in the demand for European
goods.
-Fall in P eur-->Shift from demand for domestic goods to a shift in the demand for European
goods.
-Fall in I u.s.--> Shift to European Assets
Expected Changes:
-Fall in expected i u.s.
-Rise in expected Y euro
-Rise in expected e(usd/euro) (Dollar depreciation)
Increase in the Supply of Euros - Answer Actual Change:
-Rise in Y euro--> Europeans buy more of all goods
-Fall in P us--> Europeans shift from domestic goods to U.S.
-Rise in P eur- Europeans shift from domestic goods to U.S. goods.
-Rise in I us relative to I eur--> Europeans shift to U.S. assets.
Expected Change:
-Rise in expected Y us-->U.S. equities more attractive
-Fall in expected Y euro--> Europeans equities less attractive
-Fall in expected e(usd/eur)--> USD expected to appreciate.
Foreign Exchange - Answer The act of trading different nations moneys (currency) or holdings
of foreign currency.
Exchange Rate - Answer The price of one currency in terms of another.
Spot Rate - Answer Value of currency at specific date
