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Student Handout

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Trade Flows:  California, Texas, and Washington

#1.  The diagram below illustrates trade among 3 states.  The current account (flow of goods and services merchandise) is indicated by the solid arrows.  Draw in the capital account (flow of money and/or financial assets) using dotted arrows.  (One has been completed for you.)

Balance of Payments:  State Trade

#2.  Complete the Balance of Payments Accounting for each of the 3 states.  Categorize flows of goods or money out of a state as exports. Categorize a flow of goods or money into a state as imports. Record all the transactions depicted in your trade diagram.  (The oil transaction has been entered for you.)  Then, calculate the totals.  (Hint:  Don’t forget the ? and + signs when you subtract imports from exports.)

#3 – What do you notice about the sum of the current account total and capital account total for each state?  Do you think this is always the case?  Why?   #4 – A deficit exists if a state imports more than it exports.  A surplus occurs if a state exports more than it imports.  Decide whether each state has a deficit or surplus in each of its trading accounts:

Current Account (Goods and Services) Money Account
Deficit Surplus Deficit Surplus
Washington
California
Texas

#5 – In plain words, what does it mean to have a current account deficit?  A current account surplus?  Is one better than the other?  Explain.   #6 – Was trade “balanced” between each pair of states?  _________  Can you tell which state came out the best (gained the most) in this example? Explain.   #7 – Total the value of ALL the goods exchanged in this example:  $______________   #8 – Total ALL the money spent in this example: $______________   #9 – Was trade “balanced” among all 3 states?  ___________

#10 – What would happen to the analysis of the trades if we were looking at the countries of Japan, Saudi Arabia and the United States?  Would the total flows of goods and money into a country always balance the total flows of goods and money out of the country? _______________________