Balance of Payments: Current Account

Which of the following will be accounted for on the current account of an economy’s balance of payments?

• Dividends from foreign investment

• Sale of copyright

• FDI

• Short term flows of hot money

The chart shows the changes in the UK’s current account balance over a period of time.

Which of the following is most likely to have caused the deterioration between 2011 and 2015 in the UK’s Current Account balance?

• A fall in the value of UK exports

• A fall in the value of UK imports

• The UK government sending more development aid to Syria

• A significant rise in dividend payments flowing out of the UK

Which of the following would appear as a credit item in the UK balance of payments?

• Dividend payments by Rolls Royce to Irish investors

• Money sent by UK residents to their relatives abroad

• Expenditure by the British Government in maintaining foreign embassies overseas

• The expenditure of Japanese tourists on holiday in Britain

The current account on a country’s Balance of Payments is most likely to benefit from a depreciation of its currency when it is experiencing

• price elastic demand for imports

• full employment

• price inelastic demand for exports

• high interest rates

Imports into the UK are likely to rise as a result of

• rising UK national income

• UK prices rising more slowly than prices in other countries

• households saving more of their income

• the external value of Sterling decreases

Which of the following is regarded as a credit item on the UK’s current account on the Balance of Payments?

• Investment by a Japanese car manufacturer in a factory in the UK

• A loan from the IMF to the UK

• Spending by Chinese tourists in London

• The transfer of profits from Cadbury UK to its US parent company, Kraft Foods

If the economy is at full employment, which might be the effect of an increase in exports?

• Higher inflation

• Higher deflation

• Higher employment

• An increase in spare capacity

A country is running a persistent trade deficit. The most likely effect of this is to

• reduce consumer spending on imported products

• cause an appreciation in the value of the exchange rate

• cause a rise in employment in export industries

• reduce the level of aggregate demand

In 2010 the Brazilian central bank raised interest rates. What is likely to happen in the Brazilian economy?

• The exchange rate will depreciate

• The exchange rate will appreciate

• The rate of inflation will accelerate

• The rate of inflation will become negative

Between January and March 2019, the UK current account deficit widened by £6.3 billion to £30 billion, or 5.6% of GDP. When is a deficit on the current account of the balance of payments likely to worsen?

• When the government devalues the currency

• When prices of imported products that are demand-inelastic increase

• When the government adopts a contractionary macro policy

• When the incomes from overseas investment are higher than expected