48 exam-style questions on Balance of payments — topic 4.6 of The global economy in the IB Economics syllabus — with answers and explanations. Samples below; the full set is free with an account.
Which of the following transactions is recorded in the financial account of the balance of payments?
Answer: A foreign firm buying a domestic factory
The purchase of a factory is foreign direct investment, which belongs in the financial account; exports and tourism are current account (goods/services) items and remittances are secondary income.
Remittances sent home by nationals who live and work abroad are recorded in the current account under
Answer: secondary income
Workers' remittances are one-way current transfers with nothing given in exchange, so they count as secondary income; primary income covers investment income and compensation of employees.
Dividends received by domestic residents on shares they hold in foreign companies are recorded in the balance of payments under
Answer: primary income
Income earned on foreign investments (interest, profits, dividends) is primary income in the current account; the original purchase of the shares was a financial account transaction.
A country runs a current account deficit. Assuming no errors and omissions, this must be matched by
Answer: a capital and financial account surplus
The balance of payments must balance overall: a current account deficit is financed by net inflows recorded as a surplus on the capital and financial accounts combined.
Which policy aimed at correcting a current account deficit is an example of expenditure switching?
Answer: Devaluing or allowing the currency to depreciate
Expenditure-switching policies redirect spending from imports toward domestic output, e.g. via a lower exchange rate or trade protection; tax rises, higher interest rates and spending cuts are expenditure-reducing.
A country records: net trade in goods −20 billion, net trade in services +8 billion, net primary income +5 billion, net secondary income −3 billion. Calculate the current account balance.
Answer: −10 billion
Current account = goods + services + primary income + secondary income = −20 + 8 + 5 − 3 = −10 billion, i.e. a deficit.
That was 6 of 48 Balance of payments questions.
Practise all 48 freeA student writes: 'The currency depreciated last quarter, yet the current account deficit widened, which shows the depreciation had no effect.'
See the correction →StateAO1 · 1–2 marks
One word or one short sentence. No explanation, no working: the mark is for the fact itself.
ExplainAO2 · 2–10 marks
Give reasons or causes: say what happens AND why, linking each step with 'because' or 'so that'.
OutlineAO1 · 1–2 marks
A brief account or summary: the main points in two or three sentences, no evaluation.
48 Balance of payments questions — free with an account. Spaced repetition, streaks and full exam simulations included.
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