Balance of payments (MAC)

Question 1

What is the balance of payments?

Answer 1

The balance of payments is a record of international payments over the course of a year.

Question 2

What is the current account?

Answer 2

The current account records payments for transactions between countries in the present year.

Question 3

What are the key elements of current account?

Answer 3

Trade in goods balance: value of goods exported - value of goods imported
+
The trade in services balance: value of services exported - value of services imported

= Balance of trade

Primary balance: It is the earnings of foreign investments - payments made to foreigners
+
Secondary balance: Relates to transfers in the form of money or goods and services

= The current account

Question 4

What is the balance of trade?

Answer 4

It is the value of goods and services exported minus the value of goods and services imported.

Question 5

What is a current account surplus?

Answer 5

Occurs when more money is flowing into the country than is flowing out.

Question 6

What is a current account deficit?

Answer 6

Occurs when more money is flowing out of the country than is flowing in.

Question 7

What are the causes of a current account deficit?

Answer 7

The currency is too strong

High rate of inflation

High wage costs

High rate of economic growth

Question 8

What are the causes of a current account surplus?

Answer 8

Currency is too weak

Low rate of inflation

Low wage costs

Low rate of economic growth in a country