The balance of payments on current account

Question 1

What is the current account?

Answer 1

One of the three accounts on a Nation’s balance of payments
-trading goods
-trading services
-net primary income- flow of profits interest and dividends from investments in other countries
-net secondary income- includes transfers and overseas aid and migrant remittances

Question 2

Current account deficit and surplus

Answer 2

Deficit- net outflow of income from economies circular flow
vice versa

Question 3

Causes of a current account deficit

Answer 3

• poor competitiveness: from higher inflation, lower capital investment and research, weaknesses in product performance and branding
• strong exchange rate
• domestic economic growth: demand for imported raw materials, capital equipment, luxury goods