A-Level - Current Account of BOP

What is meant by a trade in goods surplus?

• A. the cost of exports of goods exceeds the cost of imports of goods

• B. the price of exports of goods exceeds the price of imports of goods

• C. the value of exports of goods exceeds the value of imports of goods

• D. the volume of exports of goods exceeds the volume of imports of goods

Which of the following would appear as a credit item in primary income of a country’s current account of the balance of payments?

• A. earnings of some of the country’s residents who work for a few months in other countries

• B. interest paid on loans to foreign countries’ banks

• C. payments made to foreign producers of raw materials used by the countries’ most important industries

• D. revenue earned by one of the country’s airlines for carrying foreign passengers

Which of the following would be included in the current account of the balance of payments of Mauritius?

• A. spending by French people on holiday in Mauritius

• B. receipt by the Mauritian government of tax revenue paid by Mauritians

• C. the purchase of shares in German firms by Mauritians

• D. the sale of sugar cane grown in Mauritius to Chinese- owned firms based in Mauritius

What might cause a reduction in the current account surplus of Botswana?

• A. a fall in the value of Nigerian oil sold to Botswana

• B. a fall in the amount people from Botswana spend on holidays in China

• C. a rise in the value of diamonds from Botswana purchased by South African firms

• D. a rise in the profits Indian multinational companies in Botswana send home to India

The table shows information on a country’s current account of the balance of payments.

What was the value of the country’s imports of services?

• A. $10m

• B. $15m

• C. $23m

• D. $30m

Why might an expansionary fiscal policy reduce a current account deficit?

• A. Higher government spending may be on state pensions, which could increase consumer expenditure.

• B. Higher government spending could be on training workers, which could raise productivity.

• C. Lower taxes on income could result in higher aggregate demand and demand-pull inflation.

• D. Lower corporate tax could result in an increase in firms’ expenditure on imported banking services.

Which change would be most likely to reduce a current account deficit and inflation?

• A. cut in export subsidies

• B. depreciation of the currency

• C. increase in income tax

• D. tariff on imports

Which type of policy is most likely to lead to a long-term improvement in a country’s current account balance?

• A. fiscal

• B. monetary

• C. protectionist

• D. supply-side

Which policy tool designed to reduce unemployment is most likely to reduce a current account deficit?

• A. cut in income tax

• B. increase in the number of public sector workers employed

• C. increase in government spending on training

• D. increase in the money supply

Which policy tool is likely to be least effective, in the short term, in reducing a deficit on the current account of the balance of payments?

• A. contractionary fiscal policy

• B. increase in the money supply

• C. increase in export subsidies

• D. increase in import tariffs