4.2.6.3 The balance of payments NOTES

What does the current account record in the balance of payments?

• Transactions involving financial assets and liabilities

• Nation's transactions with the rest of the world involving goods, services, primary income, and secondary income

• Transactions related to non-produced, non-financial assets

• Policies to correct balance of payments deficits

Which account records transactions related to patents and copyrights?

• Current account

• Capital account

• Financial account

• Secondary income account

What is indicated by a surplus on the current account?

• The country is earning more from overseas than it is spending

• The country is spending more abroad than it is earning

• The country's currency is overvalued

• There is a high level of domestic investment

Which factor can lead to increased exports and improve the current account balance?

• Devaluation of the currency

• Lower productivity

• High inflation

• Higher productivity

What does a deficit on the current account signify?

• Balanced trade and income flows

• Reduced competitiveness internationally

• Imports exceed exports

• Exports exceed imports

Which policy is aimed at shifting domestic spending from imports to domestically produced goods?

• Fiscal austerity measures

• Expenditure-reducing policies

• Expenditure-switching policies

• Liberalizing imports

What could be a consequence of persistent deficits in the balance of payments?

• Increased domestic investment

• Reduced vulnerability to external shocks

• Overvaluation of the currency

• Increased indebtedness and vulnerability to external shocks

Which of the following is a financial account transaction?

• Trade in goods

• Recording of patents and copyrights

• Foreign direct investment

• Transfers of money like remittances

What is a potential effect of contractionary policies aimed at reducing a current account deficit?

• Lower economic growth and higher unemployment

• Appreciation of the currency

• Higher economic growth

• Increased export subsidies

Which action is suggested to correct a surplus on the current account?

• Fiscal austerity measures

• Promoting exports

• Appreciation of the currency

• Devaluation of the currency