Current Account Of The Balance Of Payments
Overview
Every country keeps a record of its dealings with the rest of the world: what it sells abroad, what it buys in, the income it earns overseas and the gifts and aid that flow back and forth. The current account of the balance of payments is the heart of that record, and whether it runs a surplus or a deficit tells you a great deal about a country's place in the world economy.
In this lesson you will learn the four components of the current account, calculate deficits and surpluses, understand why they arise, and trace their impact on GDP, employment, inflation and the exchange rate. You will also evaluate the policies a government can use to keep the account stable.
Objectives
- components of the current account of the balance of payments: - trade in goods - trade in services - primary income - secondary income
- calculation of deficits and surpluses on the current account of the balance of payments and its component sections
- reasons for current account deficits and surpluses
- impact on GDP, employment, inflation and foreign exchange rate
- the range of policies available to achieve balance of payments stability and their effectiveness.
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Lesson Evaluation
Congratulations on completing the lesson on Current Account Of The Balance Of Payments. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Which of the following is part of the trade in services on the current account? A. exports of cars B. earnings from foreign tourists C. imports of oil D. foreign aid sent abroad Answer: B
- The four components of the current account are trade in goods, trade in services, and: A. primary and secondary income B. the capital and financial accounts C. tariffs and quotas D. exports and imports only Answer: A
- A country records goods -$30bn, services +$10bn, primary income +$4bn, secondary income -$4bn. The current account is: A. a surplus of $20bn B. a deficit of $20bn C. balanced D. a deficit of $48bn Answer: B
- A current account deficit is most likely to cause the exchange rate to: A. rise B. fall C. stay fixed D. become zero Answer: B
- Foreign aid sent to another country is recorded under: A. trade in goods B. trade in services C. primary income D. secondary income Answer: D
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