The current account of the balance of payments
G3 Economics - syllabus K343, 2027
The four parts of the current account, why deficits and surpluses arise, their effects, and policies for stability.
- The current account and its four parts
The current account records trade in goods and services plus primary and secondary income flows with other countries.
- Causes of current account deficits and surpluses
A deficit can come from strong spending on imports, an uncompetitive export sector or a strong currency; a surplus from the opposite.
- Consequences of current account deficits and surpluses
Deficits can lower GDP and jobs and weaken the currency; surpluses can raise GDP and jobs but may add to inflation.
- Policies to achieve balance of payments stability
A government can reduce a current account deficit by lowering the exchange rate, cutting spending on imports, raising competitiveness or using protection.
- Put it together: Reduce a current account deficit
A country has a large current account deficit that has lasted several years. Compare three policies.
What you will be able to do
I can describe the parts of the current account and calculate a deficit or surplus.
Syllabus K343, 6.4.1. Structure of the current account of the balance of payments: components of the current account of the balance of payments: trade in goods, trade in services, primary income, secondary income; calculation of deficits and surpluses on the current account of the balance of payments and its component sections
Taught in The current account and its four parts
I can explain the causes of a current account deficit or surplus.
Syllabus K343, 6.4.2. Causes of current account deficit and surplus: reasons for current account deficits and surpluses
I can explain how a current account deficit or surplus affects GDP, jobs, inflation and the exchange rate.
Syllabus K343, 6.4.3. Consequences of current account deficit and surplus: impact on GDP, employment, inflation and foreign exchange rate
Taught in Consequences of current account deficits and surpluses
I can describe the policies that stabilise the balance of payments and judge how well they work.
Syllabus K343, 6.4.4. Policies to achieve balance of payments stability: the range of policies available to achieve balance of payments stability and their effectiveness