Balance Of Payments

Question 1

Relationship between current account and macro objectives

Answer 1

• Exchange rates: a persistent current account deficit lead to a depreciation of the country’s currency, making exports more competitive and imports more expensive
• Impact on economic growth: a surplus can lead to higher savings and investment, potentially boosting economic growth. A deficit may lead to unsustainable borrowing
• Employment: A trade surplus may support job creation in export-oriented industries
• Inflation: A depreciating currency, due to a deficit, can lead to imported inflation