Economics · Unit 4: The global economy

EC4.6 — Balance of payments

Economics · SL / HL · syllabus-mapped notes

1. EC4.6.1

   Balance of payments

   Define the balance of payments through its credit and debit items, and what a surplus or deficit on an account means.

2. EC4.6.2

   Components of the balance of payments

   Explain what the current, capital and financial accounts each record.

3. EC4.6.3

   Interdependence between the accounts

   Explain why the accounts must balance overall, with credits matched by debits and deficits by surpluses.

4. EC4.6.4

   Relationship between the current account and the exchange rate

   Explain how a current account imbalance affects the exchange rate.

5. EC4.6.5

   Relationship between the financial account and the exchange rate

   Explain how the financial account affects the exchange rate.

6. EC4.6.6

   Implications of a persistent current account deficit in terms of:

   Evaluate what a persistent current account deficit means for exchange rates, interest rates, debt, credit ratings and growth.

7. EC4.6.7

   Methods to correct a persistent current account deficit

   Explain expenditure switching, expenditure reducing and supply-side policies as ways to correct a persistent deficit.

8. EC4.6.8

   Effectiveness of measures to correct a persistent current account deficit (HL only).

   Evaluate how effective those correction measures actually are.

9. EC4.6.9

   The Marshall-Lerner condition and the J-curve effect

   Explain the Marshall-Lerner condition and use the J-curve to show why a depreciation worsens the current account before improving it.

10. EC4.6.10

    Implications of a persistent current account surplus in terms of (HL only) :

    Evaluate what a persistent current account surplus means for domestic consumption, exchange rates, inflation, employment and competitiveness.