IB Economics HL 4.6.8 Persistent current account surplus Question Bank

Level

0 The work does not reach a standard described by the descriptors below.

1 The written response is limited. For providing one implication without explanation.

For providing two implications without explanation OR for providing one implication with explanation.

2 The written response is accurate.
For providing one implication without explanation and one implication with explanation.

For providing two implications with explanation.

Implications include:
- appreciation of the currency as the demand for the currency has increased relative to its supply
- reduced export competitiveness as the currency strengthens
- reduced domestic spending as a result of increased exports or reduced imports
- worsening relations with countries who suffer a corresponding deficit on their current accounts
- a rising deficit on the financial/capital accounts
- as X>M, AD will increase, possibly leading to inflation and/or growth.
N.B. An explanation that AD will increase should be awarded [1] only.