balance of payments

Question 1

Current account surplus means

Answer 1

A current account surplus means there is a net inflow of money into the circular flow
of income.
The UK has a surplus with services, but a deficit with goods.

Question 2

current account defecit

Answer 2

This means the UK spends more on imports
from foreign countries, than they earn from exports to foreign countries.

If the deficit is large and runs for a long time, there could be financial difficulties with
financing the deficit

Question 3

The UK government’s macroeconomic objectives are to have:

Answer 3

o Full employment
o Low, stable inflation
o A sustainable current account on the balance of payments
o Sustainable economic growth

Question 4

benefit of more exports on economic growth

Answer 4

By selling more exports to foreign countries, the UK will have a greater inflow of money into the circular flow of income. This will increase AD and improve the rate of
economic growth.

Question 5

impact of economic decline on our current account

Answer 5

In the UK, during periods of economic decline or recessions, the current account
deficit falls. This is because consumer spending falls.

Question 6

impact on economic growth in regards to consumers

Answer 6

During periods of economic growth, when consumers have higher incomes and they
can afford to consume more, there is a larger deficit on the current account.

Question 7

affects on high prices abroad

Answer 7

If imported raw materials are expensive, there could be cost-push inflation in the UK,
since firms face higher production costs.

Question 8

impact of eu downturn on the balance of payments

Answer 8

If the UK’s main export market, such as the EU, faces an economic downturn then
demand for UK goods and services will fall, since consumers in the EU are less able to
afford imports