# Balance of Payments Calculation ## Step 1: Initial Balance of Payments Position - **Current Account:** Deficit of $95 billion (−$95 billion) - **Capital Account:** Surplus of $120 billion (+$120 billion) **Calculation:** \[ \text{Balance of Payments} = \text{Current Account} + \text{Capital Account} = (−95) + 120 = \$25 \text{ billion} \] **Explanation:** The initial balance of payments position is a surplus of $25 billion, because the capital account inflows more than offset the current account deficit. --- ## Step 2: New Balance of Payments Position After Capital Inflow Declines - **Capital inflows decline by $50 billion:** New capital account surplus = $120 billion − $50 billion = $70 billion - **Current Account:** Remains at −$95 billion **Calculation:** \[ \text{New Balance of Payments} = (−95) + 70 = −\$25 \text{ billion} \] **Explanation:** After the $50 billion drop in capital inflows, the capital account surplus is reduced. The current account deficit is now greater than the capital account surplus, resulting in a $25 billion deficit in the balance of payments. --- ## Final Answers - **Initial position:** $25 billion surplus - **After decline in capital inflows:** $25 billion deficit