The sum of the balance of trade (goods and services exports minus imports), net income from abroad, and net current transfers.

A measure of the transfer of assets and liabilities into and out of a nation.

Used to offset the balance of credits and debits into and out a country.

The value of visible exports (export of physical goods) minus the value of visible imports (import of physical goods).

The value of invisible exports (export of services) minus the value of invisible imports (import of services).

The sharp rise in the current account surplus has been caused by an increase in sales of exports overseas as well as a decline in the volume of imports purchased by its citizens.  There has also been a sharp fall in profits repatriated overseas and these collectively indicate that the economy is suffering from weak economic activity overall relative to their main trading partners.  The sharp rise in exports suggests not only that the country is producing products which are popular around the world but also that those economies are generally increasing their demand levels.  By contrast the sharp fall in import levels suggests that domestic consumers are cutting back on their expenditure.

This is also supported by the decline in revenues made by overseas investors, equal to 15%.  This also suggests sluggish economic activity in the country.  It is unlikely that the country improved their trading balance by imposing tariffs on imported goods because this measure would have probably brought retaliatory action from their trading partners which did not happen (exports increased).

Command term: Recommend—present an advisable course of action with appropriate supporting evidence/reason in relation to a given situation, problem or issue.

A suitable policy that might be effective in correcting a current account surplus might be contractionary monetary policy in the form of higher interest rates to revalue/appreciate the exchange rate, making a nation's exports less competitive and imports cheaper. This could be illustrated by diagram 1, where following a rise in interest rates (by the central bank) hot money flows come into the country, increasing demand for the currency - in this case the $.

In the diagram, higher interest rates have increased the value of the $ has risen from 1.28 Euros to 1.1 Euros - an appreciaiton of the currency.

Responses should also include possible reasons why a naiton might wish to correct a current account surplus. For example, to guard against other nations deciding to impose tariff barriers or other protectionist measures on the nation with the surplus.

Identify the strengths of the policy in terms of correcting a current account surplus, as well as other benefits of the policy, such as lower inflation.

Evaluation/synthesis might include a discussion of the costs of the policy, for example, higher interest rates will also icnrease the cost of borrowing reducing investment and consumption levels in the economy. Responses might also note that reduced consumption in the economy might lower import sales, further adding to the current account surplus. The response should also include an overall justification of the policy in terms of whether the country will benefit from the policy or not?

Other examples of relevant policies to promote the university education might be:

• supply side policies
• policies aimed at deregulation of trade policies aimed at raising import levels
• direct intervention in foreign currency markets
• a combination of policies.

Responses in section (i) should be graded according to the following mark bands:

Maximum mark 10

The current account, capital account, the financial account and the balancing item.

The difference between income earned from abroad by normal residents of a country (from rent, interest, wages e.t.c.) and the income earned by non-residents (foreigners) in that country.

When a country imports more goods, services, and capital than it exports. It encompasses the trade deficit plus capital like net income and transfer payments.

A statement of all transactions made between entities in one country and the rest of the world over a defined period of time.

If Chinese products become more popular then there will be a rise in demand for Chinese imports in the USA, represented by a rise in the supply of $s.  Demand for $s will fall because other nations (including China) will demand US$ (because demand for US products will become relatively less popular).

Yes according to the Marshall-Lerner condition the combined PED elasticity of both exports and imports is greater than 1.

£ = 1.08 Є, CHF = 0.94 Є 

UK because the combined elasticities of both exports and imports is greater than 1.

After point Y

Between points X and Y the combined elasticities of both exports and imports < 1.

Between points Y and Z the combined elasticities of both exports and imports > 1.

Possible policies may include (but are not restricted to):

• contractionary monetary policy
• supply side policies
• export promotion strategies
• trade barriers aimed at restricting import levels
• direct intervention in foreign currency markets
• a combination of policies.

Responses in section (h) should be graded according to the following mark bands:

Maximum mark 10