(A Level) Balance of payments policy and exchange-rate systems

Learning objectives

Describe the full balance of payments — current, financial and capital accounts — and explain why the accounts balance overall

Analyse the effects of fiscal, monetary, supply-side, protectionist and exchange-rate policies on the balance of payments, distinguishing expenditure-switching from expenditure-reducing policies

Measure exchange rates in nominal, real and trade-weighted terms

Explain how exchange rates are determined in fixed and managed systems, distinguish devaluation from revaluation and compare how the rate changes under each system

Apply the Marshall–Lerner condition and the J-curve to the effect of an exchange-rate change on the current account