3.2.4.2 Balance of payments

• The current account measures trade in goods, services, and income.


  True
• Match the current account component with its description:

  Trade in Goods ↔️ Value of exported and imported goods

  Trade in Services ↔️ Value of services exchanged internationally

  Income ↔️ Earnings on investments abroad

  Net Transfers ↔️ Financial transfers like foreign aid
• The capital account and financial account are part of the balance of payments
• Match the account with its key focus:

  Capital Account ↔️ Transfer of capital and assets

  Financial Account ↔️ Change in ownership of assets
• What does the current account track in a country's balance of payments?

  Trade, income, net transfers
• What does the "Trade in Goods" component measure in the current account?

  Exported and imported goods
• What is included in the "Net Transfers" component of the current account?

  Foreign aid and gifts
• What does the financial account measure in the balance of payments?

  Change in ownership of assets
• What are the key differences between the capital and financial accounts?

  Asset transfer vs ownership change
• Higher domestic inflation can worsen the trade balance.


  True
• Why is the balance of payments crucial for the global economy?

  Tracks trade and investment
• International cooperation and trade agreements can stabilize global balances by reducing trade barriers.


  True
• What is the balance of payments?

  Record of economic transactions
• What does the capital account measure?

  Flow of capital
• Steps to understand the balance of payments

  1️⃣ Identify the current account

  2️⃣ Identify the capital account

  3️⃣ Analyze trade balance

  4️⃣ Assess investment income

  5️⃣ Track financial asset flows
• The capital account focuses on the change in ownership of assets.

  False
• Why is the balance of payments important for a global economy?

  Tracks economic interactions
• The current account is part of the **balance of payments
• The capital and financial accounts are other main components of the balance of payments
• The capital account focuses on asset ownership changes, while the financial account focuses on asset transfers.

  False
• The capital account includes foreign direct investment, while the financial account includes loans
• How do higher domestic interest rates affect capital flows?

  Attract foreign capital
• What fiscal policy can a country use to reduce a current account deficit?

  Reduce government spending
• The balance of payments consists of two main accounts: the current account and the capital account
• How many key components does the current account have?

  Four
• The current account includes trade in goods, services, income, and net transfers
• The "Income" component includes earnings on investments abroad.


  True
• Government policies such as tariffs can directly impact trade and investment flows in the balance of payments
• The current account measures the trade in goods, services, income, and net transfers
• What does the financial account include?

  Loans and securities
• Match the account with its key components:

  Capital Account ↔️ Foreign direct investment

  Financial Account ↔️ Loans and securities
• How does a weaker domestic currency affect the balance of payments?

  Exports become cheaper
• To manage a current account surplus, a country can stimulate imports