Current account of the balance of payments
The current account
- The balance of payments records all money flowing in and out of a country.
- Its main part, the current account, has four sections:
- trade in goods (physical exports/imports),
- trade in services (tourism, banking, shipping),
- primary income (wages, interest, profit from abroad),
- secondary income (aid and gifts).
Practice
Which is part of the current account?
The current account has trade in goods, trade in services, primary income and secondary income.
Deficit, surplus & fixing it
- deficit — more money flows out than in (buys more than it sells); surplus — more flows in.
- Correct a deficit by: cutting demand (fewer imports), letting the currency depreciate, using trade protection, or improving competitiveness (supply-side).
Practice
A current account deficit means:
A deficit means imports/outflows exceed exports/inflows; a surplus is the opposite.
Practice
Which can help correct a current account deficit? (Choose all that apply.)
Cutting demand, depreciation, protection and better competitiveness all reduce a deficit.
You've got it
Key idea
- the current account = trade in goods + services + primary + secondary income
- deficit = more out than in; surplus = more in than out
- fix a deficit: cut demand, depreciate, protect, or raise competitiveness