Question

1. In each of the following cases, carefully explain how the balance of payments remains zero, with reference to the current account and/or the capital account. For the purposes of this question, assume that Canada is the domestic economy. (20%) (a) A Canadian resident of Bulgarian origin gifts

600 million in company shares. (d) A Canadian receives $100,000 in rental income every year from an Airbnb he owns in Croatia. His tenants pay him in Canadian dollars.

Answer 1

In scenario (a), the current account balance remains unaffected when a Canadian resident gifts company shares. In scenario (d), the current account balance increases by $100,000 when a Canadian receives rental income from an Airbnb in Croatia.

Step-by-step explanation:

In this scenario, we need to consider the current account balance, which includes the balance of payments for goods, services, income, and unilateral transfers.

(a) When a Canadian resident of Bulgarian origin gifts 600 million in company shares, this transaction falls under the capital account, as it involves a change in ownership of assets. The current account balance remains unaffected.

(d) When a Canadian receives $100,000 in rental income from an Airbnb in Croatia, this transaction falls under the current account as it involves the receipt of income from abroad. The current account balance increases by $100,000.