Practise analysing current-account deficits or surpluses through aggregate demand, jobs, prices, exchange rates, foreign finance and living standards, then evaluating persistence.
A country has a persistent deficit on the current account of its balance of payments.
Assess the likely consequences for the domestic and external economy of this country.
Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question.
AO1 and AO2 out of 8 marks. AO3 out of 4 marks.
Indicative content
Responses may include:
AO1 Knowledge and understanding and AO2 Analysis
- Explanation of what is meant by a persistent deficit on the current account of the balance of payments.
- Analysis of the consequences of a persistent deficit on the domestic economy e.g., in terms of employment levels, economic growth, inflation, living standards, government budget, business confidence, possible need to restructure the economy etc.
- Analysis of the consequences of a persistent deficit on the external economy e.g., exchange rates, ability to trade, need for imports, debt interest, etc.
Note: accept answers that refer to the impact on other economies when another economy has a persistent current account deficit.
Marking guidance:
Max L 2 if only the consequences on the domestic or the external economy are considered.
AO3 Evaluation
That clearly considers the likely consequences on both parts of the economy and comes to a conclusion as to the most likely consequences.
Accept all valid responses.
A one-sided response cannot gain any marks for evaluation.
AO1 Knowledge and understanding and AO2 Analysis
AO3 Evaluation