Balance of payments

Learning objectives

Describe the structure of the balance of payments: the current account (goods, services, income, current transfers), the capital account and the financial account (direct investment, portfolio investment, reserve assets, official borrowing)

Explain why the accounts must sum to zero and calculate elements of the balance of payments from a set of data

(HL) Explain the relationship between the current account, the financial account and the exchange rate

(HL) Evaluate the implications of a persistent current account deficit for the exchange rate, interest rates, foreign ownership of assets, debt, credit ratings and growth, and the implications of a persistent surplus

(HL) Evaluate methods of correcting a persistent current account deficit: expenditure switching, expenditure reducing and supply-side policies

(HL) Explain the Marshall–Lerner condition and the J-curve effect