b) Causes of deficits and surpluses oncurrent account

• What does BoP stand for in economics?

  Balance of Payments
• Why should the current account balance with the capital and financial account?

  To ensure that the total balance equals zero
• What is the term for the difference when the current account and capital/financial account do not balance perfectly?

  Net error and omissions
• What happens if there is a current account deficit?

  There must be a surplus in the capital and financial account
• How is a current account deficit financed?

  By money flowing into the country from the sale of assets
• What must occur if there is a current account surplus?

  There must be a deficit in the capital and financial account
• What does a current account surplus finance in other countries?

  The purchase of assets
• What are the relationships between current account and capital/financial account balances?

  • Current account surplus leads to capital/financial account deficit
  • Current account deficit leads to capital/financial account surplus
  • Net error and omissions account for discrepancies