Balance of Payments

Question 1

Balance of payments

Answer 1

Difference in total value between payments into and out of a country over a period (usually a year)

Question 2

What does the current account record payments for? (4)

Answer 2

1. Trade in goods
2. Trade in services
3. Investment income
4. Transfers e.g. tax payments to foreign governments

Question 3

Causes of current account deficit (5)

Answer 3

1. Currency too strong compared to other countries
2. high rates of inflation relative to other countries
3. High wage costs relative to other countries
4. High level of growth meaning more people buy more imports
5. High consumer spending (low IR)

Question 4

Current account deficit

Answer 4

Where more money is flowing out than is flowing into the country

Question 5

Current account surplus

Answer 5

When more money is flowing in than is flowing out of the country

Question 6

Causes of current account surplus (5)

Answer 6

1. Currency is too weak in relation to other countries
2. Low inflation compared to other countries
3. Low wage costs relative to other countries
4. Natural resources e.g. Saudi Arabia
5. Low levels of growth in a country (But China has high growth rates including total factor productivity in industry 6% growth a year 2000-10)