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Economics IGCSEPDF 114
118 pagesrevision 46932
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Consequences
Trade in goods
Trade in services
Primary income
Secondary income
Deficit and surplus
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surplus
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deficit
Causes of deficits/surpluses
Structure of the current account
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● Components:
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(exports and imports of physical goods).
(tourism, transport, insurance, financial services).
(investment income, earnings from abroad).
(current transfers: remittances, foreign aid).
Persistent deficit: may lead to depletion of foreign reserves, currency devaluation,
inflation, increased borrowing.
Surplus: may strengthen currency, reduce inflation risk, improve reserves — but may
also indicate weak domestic consumer demand or high savings.
● Strong export growth, devaluation, high commodity prices → possible surplus.
● High imports, weak exports, over-valued currency, domestic boom → possible deficit.
A
:exportofgoods/services/income/transfers > imports — net inflow of foreign
exchange.
A
:imports>exports— net outflow of foreign exchange.