4.3.4 The balance of payments on current account

    Cards (67)

    • What does the balance of payments current account record?
      Transactions with the world
    • Match the current account component with its description:
      Trade Balance ↔️ Exports and imports of goods and services
      Income Balance ↔️ Net income from investments and employment
      Transfers Balance ↔️ Net current transfers
    • Order the components of the balance of payments current account:
      1️⃣ Trade Balance
      2️⃣ Income Balance
      3️⃣ Transfers Balance
    • The income balance measures net income from investments and employment
    • Match the current account balance with its impact:
      Surplus ↔️ Capital inflows
      Deficit ↔️ Capital outflows
    • Higher relative inflation makes domestic goods less competitive
    • A current account surplus can lead to potential inflationary pressures.

      True
    • A stronger domestic currency makes imports cheaper
    • How does a stronger domestic currency affect the current account balance?
      Worsens trade balance
    • Match the global economic condition with its impact on the current account:
      Recession in major trading partners ↔️ Reduces export demand
      Global economic boom ↔️ Increases export demand
    • Why is reducing export subsidies a policy to address a current account surplus?
      Rebalances trade account
    • What is the purpose of reducing import restrictions to address a current account deficit?
      Offsets trade deficit
    • What are the three main components of the balance of payments current account?
      Trade, income, transfers
    • A current account surplus can lead to inflationary pressures due to increased foreign investment.

      True
    • A current account deficit always leads to immediate currency depreciation.
      False
    • A current account deficit can increase the risk of currency depreciation.

      True
    • Faster domestic economic growth tends to widen the current account deficit.
    • Lower domestic savings can increase the need for foreign capital.
    • What is one policy to address a current account surplus?
      Appreciate the exchange rate
    • What is one policy to address a current account deficit?
      Depreciate the exchange rate
    • What effect does a current account surplus have on the exchange rate?
      Currency appreciation
    • Which country consistently runs a current account surplus due to strong exports of manufactured goods?
      Germany
    • A current account deficit is sustainable if it reflects high domestic investment funded by foreign capital.

      True
    • The trade balance records a country's exports and imports of goods and services
    • What is the overall sum of the three components of the current account?
      Overall economic transactions
    • What does the trade balance specifically measure?
      Exports and imports
    • What does a current account surplus indicate about a country's economy?
      Earnings exceed expenses
    • How does faster domestic economic growth affect the current account balance?
      Increases imports
    • What does the trade balance measure in the current account?
      Difference between exports and imports
    • What are the main factors that can affect a country's current account balance?
      Domestic growth, exchange rate
    • Lower domestic savings can lead to a current account deficit.
      True
    • What are policies to address a current account surplus?
      Appreciate exchange rate
    • Depreciating the exchange rate improves the trade balance by making exports cheaper.

      True
    • How does a current account surplus affect the exchange rate?
      Currency appreciation
    • Match the component of the current account with its description:
      Trade Balance ↔️ Exports and imports of goods and services
      Income Balance ↔️ Net income from investments and employment
      Transfers Balance ↔️ Net current transfers
    • What does the current account balance reflect in a country's economy?
      Earnings and expenses in trade
    • What is one potential impact of a current account surplus?
      Inflationary pressures
    • Match the account balance with its impact:
      Surplus ↔️ Increased foreign investment
      Deficit ↔️ Reliance on foreign capital
    • A stronger domestic currency makes exports cheaper and imports more expensive.
      False
    • Budget deficits in government fiscal policy tend to worsen the current account deficit.
      True