2.1.4 Balance of Payments

Question 1

What is the Balance of Payments?

Answer 1

a record of all trades and transactions of a country with the rest of the world

Question 2

What are the four components of the balance of payments?

Answer 2

• Trade in goods
• Trade in services
• Investment income
• Transfers

Question 3

What is meant by a current account surplus?

Answer 3

when we export more than imports

Question 4

What is meant by a current account deficit?

Answer 4

when we import more than we export

Question 5

When might a current account deficit be considered a problem?

Answer 5

when we cannot fund the deficit anymore

Question 6

How might a current account deficit affect unemployment?

Answer 6

reduces number of jobs so unemployment increases

Question 7

How might a current account deficit affect inflation?

Answer 7

government spending goes up, AD goes up so inflation goes up

Question 8

How might growth affect a current account balance?

Answer 8

growth = more disposable income, more spending of imports, deterioration of current account

Question 9

Why can’t all countries have a current account surplus at the same time?

Answer 9

some countries rely on one another