CURRENT ACCOUNT

What are the components of BOP?

Define 'balance of trade'. [2]

Match the following. [5]

• Remittances

• Income

• BOT in services

• A resident of the domestic country

• not included in the BOP

• Invisible Trade

• a person who resides in the domestic country for one year or more

• Transfer Payments (Individual level)

• Dividends

• No monetary movement from a resident to non-resident (and to non-resident to resident)

What was the country's current account balance in 2015?

• -40B

• -30B

• -20B

• -10B

• A

• B

• C

• D

When does a BOT surplus occur? [2]

(Please answer in a complete sentence.)

Answer explanation

A surplus in the BOT happens when export revenue is greater than import expenditure.

OR

A surplus in the BOT happens when import expenditure is lesser than export revenue.

Pay attention: The BOP exclusion is asked.

:from the POV of Germany

• A

• B

• C

• D

How does a devaluation of a country currency affect its current account, ceteris paribus? [6]

Answer explanation

Devaluation is the deliberate downward adjustment to the value of a country's currency relative to another currency, group of currencies.

Ceteris paribus, a devaluation of a country's currency will result to a reduction of its current account deficit as it will lead to a higher next exports. This is due to a more competitive price in its exports and expensive imports caused by imported inflation.

When does a surplus in the current account not an advantage?

Answer explanation

A current account surplus means that the value of exports is greater than the value of imports (of goods and services). However, a current account surplus might be the result of a recession and low consumer spending.

In a recession, we would expect to see a fall in consumer spending; therefore, we will see lower spending on imports. This will cause a current account surplus. In this case, the low aggregate demand is causing a current account surplus.

NOTE: TWO POLICES are ASKED.

Both policies should target DEFICIT on the CA.

Expenditure switching is a macroeconomic policy that affects the composition of a country’s expenditure on foreign and domestic goods. More specifically it is a policy to balance a country’s current account by altering the composition of expenditures on foreign and domestic goods

• A

• B

• C

• D

Answer explanation

A = fiscal policy

B =