BALANCE OF PAYMENTS

Question 1

BOP MADE UP OF THREE ACCOUNTS

Answer 1

Current
Capital
Financial

Question 2

FOUR SECTIONS IN THE CURRENT ACCOUNT

Answer 2

Trade in goods
Trade in services
Transfers ‘secondary income’
Investment and employment income ‘primary income’

Question 3

MAY HAVE A CURRENT ACCOUNT DEFICIT IF

Answer 3

There are high levels of consumer spending
Struggling to compete internationally
Dealing with external shocks

Question 4

MAY HAVE A CURRENT ACCOUNT SURPLUS IF

Answer 4

They are experiencing a recession
Domestic currency has a low value
High interest rates

Question 5

CONSEQUENCES OF A BOP DEFICIT

Answer 5

Could indicate and uncompetitive economy
Fall in value of currency, higher import prices; can lead to imported inflation
Could lead to domestic job losses

Question 6

CONSEQUENCES OF A BOP SURPLUS

Answer 6

Can experiences stagnation, low domestic demand
This can lead to negative economic growth which can lead to further problems like high unemployment
Over reliance on exports
Undervalued currencies can lead to inflationary pressures

Question 7

GOVERNMENTS CAN CORRECT IMBALANCES IN THE BOP

Answer 7

~May use policies to decrease the prices on domestic goods. Should lead to an increase in exports and a fall in imports
~May impose restrictions on imports, eg tariffs to make them more expensive
~Depreciation in the currency