- Explain why a deficit in the current account of the balance of payments may result in downward pressure on the exchange rate of the currency.
- Discuss the implications of a persistent current account deficit, referring to factors including foreign ownership of domestic assets, exchange rates, interest rates, indebtedness, international credit ratings and demand management.
- Explain the methods that a government can use to correct a persistent current account deficit, including expenditure switching policies, expenditure reducing policies and supply-side policies, to increase competitiveness.
- Evaluate the effectiveness of the policies to correct a persistent current account deficit.
- State the Marshall-Lerner condition and apply it to explain the effects of depreciation/devaluation.
- Explain the J-curve effect, with reference to the Marshall-Lerner condition.
Current account surpluses
- Explain why a surplus in the current account of the balance of payments may result in upward pressure on the exchange rate of the currency.
- Discuss the possible consequences of a rising current account surplus, including lower domestic consumption and investment, as well as the appreciation of the domestic currency and reduced export competitiveness.
Continue on with the tasks contained in the Balance of Payments packet.