IB Econ 4.6 Balance of Payments (HL) | Baamboozle - Baamboozle

How could a country adopting a fixed exchange rate system correct a persistent current account deficit if its long-term PEDx = 0.5 and the PEDm = 0.6

Marshall-Lerner condition is reached, so it can devalue its currency.

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A current account deficit implies that there is a financial account...

Surplus

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The Marshall-Lerner Condition occurs when...

PEDX + PEDM > 1

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The upside down J curve occurs following a/an...

appreciation of the nation's currency

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What is the value of the current account?

-$130 billion

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A persistent current account surplus causes what type of inflation?

Demand-pull inflation.

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What is the value of the trade balance?

-$120 billion

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What is the formula of the balance of payments?

Current account + financial account + capital account + errors & omissions = 0

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Explain how exporters are affected by when a persistent current account surplus gets corrected

Lose competitiveness - previously low exchange rate appreciates in value

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Which account is debt forgiveness under?

Capital account

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To correct a current account deficit, the exchange rate must...

depreciate / devalue

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Identify the impact that a persistent current account deficit would have on exchange rates

Downward pressure on exchange rates.

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Lose 25 points!

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Reset score!

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Give 25 points!

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Outline TWO reasons why a depreciation of the currency might not immediately correct a current account deficit.

Ongoing contracts, existing habits and tastes, limited access to info

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