Current account of the balance of payments
The balance of payments
- The balance of payments records all money flows between a country and the rest of the world.
- Its most-studied part is the current account, with four parts:
- trade in goods (physical exports/imports),
- trade in services (tourism, banking),
- primary income (wages, profit, interest from abroad),
- secondary income (transfers like aid).
Practice
Which is part of the current account?
The current account has trade in goods, trade in services, primary income and secondary income.
Deficit and surplus
- a current account deficit — buys more from abroad than it sells.
- a current account surplus — the opposite.
- A long deficit can mean rising debt to other countries; a big surplus can mean the country saves a lot but consumes little.
Practice
A current account deficit means a country:
A deficit means imports of goods/services and income flows exceed exports — money flows out on net.
Practice
A long current account deficit can mean a country builds up debt to other countries.
Persistent deficits are financed by borrowing or selling assets, raising debt to the rest of the world.
You've got it
Key idea
- the current account = trade in goods + services + primary income + secondary income
- deficit = imports exceed exports; surplus = exports exceed imports
- a long deficit can build up debt to other countries