International Economics

TOPIC III: Balance of Payments

1. identify and define the major sections of the balance of payments account.
2. distinguish between favorable and unfavorable balance.
3. explain the current problem related to the balance of payments problem.
4. identify macro economic policies which directly affect the balance of payments.
5. use concepts from exchange rates to determine how appreciated or depreciated currencies will affect balance of payments.
6. evaluate solutions which attempt to address the balance of payments problem.

KNOW THE FOLLOWING TERMS

Balance of payments	Exchange rate
Flexible exchange rate	Special Drawing Rights
balance of payments account	Foreign exchange market
deficit	surplus
balance of trade	currency appreciation
currency depreciation	"J" Curve Effect

KEY CONCEPTUAL QUESTIONS 

1. What information is included in the balance of payments account of a nation?
2. How do monetary and fiscal policy influence the exchange rate and the balance of payments account?
3. Is a trade deficit a sign of economic weaknesses? Is a trade surplus an indication of economic strength?
4.