What you’ll learn8 learning objectivesChoose one objective for a focused lesson, or study the complete topic.4.6.1Balance of payments• Balance of payments records credit and debit items• Accounts can show surpluses or deficits• Calculation: elements of the balance of payments from dataSyllabus objective4.6.2Components of the balance of payments• Current account includes trade in goods, trade in services, income, and current transfers• Capital account includes capital transfers and transactions in non-produced non-financial assets• Financial account includes FDI, portfolio investment, reserve assets, and official borrowingSyllabus objective4.6.3Interdependence between accounts• The balance of payments has an overall zero balance• Credits are matched by debits• Deficits are matched by surplusesSyllabus objective4.6.4(HL)—Current account and exchange rate• The current account balance relates to currency demand, supply, and exchange rate movements• Diagram [HL]: exchange rate showing relationship between current account balance and exchange rateSyllabus objective4.6.5(HL)—Financial account and exchange rate• Financial account flows affect demand and supply for a currency• Capital and financial flows can influence exchange ratesSyllabus objective4.6.6(HL)—Persistent current account deficit• Deficits have implications for exchange rates, interest rates, foreign ownership of domestic assets, debt, credit ratings, demand management, and growth• Correction methods include expenditure switching, expenditure reducing, and supply-side policies• Evaluation considers effectiveness of measures to correct persistent deficitsSyllabus objective4.6.7(HL)—Marshall-Lerner condition and J-curve• Marshall-Lerner condition explains when depreciation improves the current account• J-curve effect shows the possible short-run worsening before improvement• Diagram [HL]: J-curve with reference to the Marshall-Lerner conditionSyllabus objective4.6.8(HL)—Persistent current account surplus• Surpluses have implications for domestic consumption and investment, exchange rates, inflation, employment, and export competitiveness• Evaluation considers domestic and international consequencesSyllabus objective
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