a) Distinguish between Balance of trade and balance of payments.

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Here is the solution to question 4. 4. a) Distinguish between Balance of trade and balance of payments. Balance of trade refers to the difference between a country's visible exports (goods) and visible imports (goods) over a period. It is a component of the current account. Balance of payments (BOP) is a comprehensive record of all economic transactions between a country and the rest of the world over a period, including visible trade, invisible trade (services), capital transfers, and financial flows. b) Calculate: i. Balance of trade. Step 1: Identify visible exports and visible imports from the table. Visible Exports (Export of Timber and cotton) = 75 million FCFA; Visible Imports (Import of cars and smart phones) = 60 million FCFA Step 2: Calculate the Balance of Trade. Balance of Trade = Visible Exports − Visible Imports; Balance of Trade = 75 − 60; Balance of Trade = 15 million FCFA ii. Current account balance. Step 1: Use the Balance of Trade calculated above and identify invisible exports and invisible imports. Balance of Trade = 15 million FCFA; Invisible Export = 55 million FCFA; Invisible Import = 60 million FCFA Step 2: Calculate the Current Account Balance. Current Account Balance = Balance of Trade + Invisible Export − Invisible Import; Current Account Balance = 15 + 55 − 60; Current Account Balance = 70 − 60; Current Account Balance = 10 million FCFA iii. Balance of payments. Step 1: Use the Current Account Balance calculated above and identify the Capital Account Balance and Balancing Item. Current Account Balance = 10 million FCFA; Capital Account Balance = −5 million FCFA; Balancing Item = 2 million FCFA Step 2: Calculate the Balance of Payments. Balance of Payments = Current Account Balance + Capital Account Balance + Balancing Item; Balance of Payments = 10 + (−5) + 2; Balance of Payments = 10 − 5 + 2; Balance of Payments = 5 + 2; Balance of Payments = 7 million FCFA c) Explain three first-aid measures used to correct a deficit on the BOP. Devaluation of currency: This makes a country's exports cheaper and more attractive to foreign buyers, while making imports more expensive for domestic consumers. This can increase exports and decrease imports, helping to reduce a BOP deficit. Import restrictions: Governments can impose tariffs (taxes on imports) or quotas (limits on the quantity of imports) to reduce the volume of goods entering the country. This directly reduces the outflow of currency for imports. Export promotion: Measures such as subsidies, tax incentives, or marketing support can be provided to domestic industries to encourage them to increase their exports. This boosts the inflow of foreign currency and helps to correct the deficit.

A) Distinguish between Balance of trade and balance of payments.

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Step-by-step solution

Part b· 6 steps

Identify visible exports and visible imports from the table.

Calculate the Balance of Trade.

Use the Balance of Trade calculated above and identify invisible exports and invisible imports.

Calculate the Current Account Balance.

Use the Current Account Balance calculated above and identify the Capital Account Balance and Balancing Item.

Calculate the Balance of Payments.

Part c

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