The Current Account of the Balance of Payments (Pack 8)

• What is the term "balance of payments" defined as?

  It is a record of all economic transactions.
• What are the four parts of the current account?

  • Trade balance (exports and imports)
  • Net income from abroad
  • Net current transfers
  • Balance of services
• What does "current account deficit" refer to?

  It indicates that a country spends more than it earns.
• What are the trends in the UK's current account?

  Trends include increasing deficits and trade imbalances.
• What is the term "exchange rate" defined as?

  It is the value of one currency in terms of another.
• How are exchange rates determined in the UK?

  • Supply and demand for currencies
  • Interest rates and inflation rates
  • Economic stability and growth prospects
• What factors could cause a stronger currency appreciation?

  Higher interest rates and economic stability.
• What is "hot money"?

  It refers to capital that moves quickly for profit.
• How does each change in interest rate affect exchange rates?

  Higher rates attract foreign investment, strengthening currency.
• Would a depreciation in a currency cause an increase or decrease in exports?

  It would likely cause an increase in exports.
• How does a current account deficit affect a country's currency?

  It may lead to depreciation of the currency.
• What are the benefits of the UK imposing tariffs on imports?

  • Protects domestic industries
  • Increases government revenue
  • Reduces trade deficits
• What are three methods of protectionism?

  • Tariffs: Taxes on imports
  • Quotas: Limits on quantity of imports
  • Subsidies: Financial support to local businesses
• How might a weakening of the pound affect the UK economy?

  It could boost exports but increase import costs.
• What are five possible reasons for a current account deficit?

  High imports, low exports, weak currency, inflation, and low savings.
• What are two benefits of the UK imposing tariffs on imports?

  • Protects domestic industries from foreign competition
  • Generates revenue for the government
• What are two drawbacks of the UK imposing tariffs on imports?

  • Increases prices for consumers
  • May lead to trade retaliation from other countries