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4. The national and international economy
4.3 Economic performance
4.3.4 The balance of payments on current account
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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
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