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IB Econ 4.6 Balance of Payments (HL)
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A current account deficit implies that there is a financial account...
Surplus
Explain how exporters are affected by when a persistent current account surplus gets corrected
Lose competitiveness - previously low exchange rate appreciates in value
Identify the impact that a persistent current account deficit would have on exchange rates
Downward pressure on exchange rates.
Economic growth is caused by a persistent current account...
Surplus
A persistent current account surplus causes what type of inflation?
Demand-pull inflation.
Graph out how a current account deficit can be represented using a diagram.
Demand (credits) is lower than supply (debits)
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.
The PED of exports and imports are both elastic. Based on this info, can we determine whether the MLC is fulfilled? Why or why not?
We cannot, as we don't know the extent to which it is inelastic.
The upside down J curve occurs following a/an...
appreciation of the nation's currency
The Marshall-Lerner Condition occurs when...
PEDX + PEDM > 1
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
To correct a current account deficit, the exchange rate must...
depreciate / devalue
Which account is portfolio investment under?
Financial account
What is the value of the trade balance?
-$120 billion
What is the value of the current account?
-$130 billion
What is the formula of the balance of payments?
Current account + financial account + capital account + errors & omissions = 0
Which account is debt forgiveness under?
Capital account
Which account is remittances under?
Current account
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