The current account of the balance of payments

G3 Economics - syllabus K343, 2027

The four parts of the current account, why deficits and surpluses arise, their effects, and policies for stability.

• The current account and its four parts

  The current account records trade in goods and services plus primary and secondary income flows with other countries.

• Causes of current account deficits and surpluses

  A deficit can come from strong spending on imports, an uncompetitive export sector or a strong currency; a surplus from the opposite.

• Consequences of current account deficits and surpluses

  Deficits can lower GDP and jobs and weaken the currency; surpluses can raise GDP and jobs but may add to inflation.

• Policies to achieve balance of payments stability

  A government can reduce a current account deficit by lowering the exchange rate, cutting spending on imports, raising competitiveness or using protection.

• Put it together: Reduce a current account deficit

  A country has a large current account deficit that has lasted several years. Compare three policies.