Balance of Payments

Question 1

What is the Balance of Payments?

Answer 1

the difference in total value between payments into and out of a country over a period

Question 2

What are the four components of the balance of payments?

Answer 2

• goods
• services
• income
• current transfers

Question 3

What is meant by a current account surplus?

Answer 3

a country has more exports and incoming payments than imports and outgoing payments to other countries

Question 4

What is meant by a current account deficit?

Answer 4

a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports

Question 5

When might a current account deficit be considered a problem?

Answer 5

if foreign investors stop wanting to purchase assets in that country

Question 6

How might a current account deficit affect unemployment?

Answer 6

If domestic industries are unable to compete with cheaper imports, it can lead to job losses in sectors affected by increased import competition so unemployment will increase

Question 7

How might a current account deficit affect inflation?

Answer 7

cause the price of imports to rise though, leading to higher prices for consumers and potentially cost-push inflation

Question 8

How might growth affect a current account balance?

Answer 8

an increase in the current account deficit

Question 9

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

Answer 9

A current account surplus is a positive current account balance, indicating that a nation is a net lender to the rest of the world so another country needs to be in a deficit