Question 5(b)
[Maximum number: 12]
Assess whether an economy will always benefit from having a surplus on the current account of its balance of payments.
CAIE A-Level Economics 6.3.4 Effects of Current Account Imbalances
Practise analysing current-account deficits or surpluses through aggregate demand, jobs, prices, exchange rates, foreign finance and living standards, then evaluating persistence.
How this is tested
- trace weaker net exports to lower AD, output and employment under a fixed exchange rate
- explain how a floating-rate deficit can reduce currency demand and cause depreciation
- evaluate cheap imports or foreign finance against debt, vulnerability and lost domestic capacity