2.1.4 Balance of payments

Question 1

What is the balance of payments

Answer 1

A record of international payments over the course of a year

Question 2

Causes of a current account deficit

Answer 2

The currency is too strong relative to other countries
High rates of inflation relative to other countries
High wage costs relative to other countries
High levels of growth in a country meaning people with higher incomes tend to buy more imports from abroad

Question 3

Causes of a current account surplus

Answer 3

The currency is too weak relative to other countries
Low rates of inflation relative to other countries
Low wage costs relative to other countries
Low levels of growth in a country making it difficult to buy imports from abroad and creating strong incentive for firms in a country to export