Lesson 2.1.4

2.1.4 Balance of payments Quiz: Pearson Edexcel Economics, Unit 2

20 questions

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Lesson 2.1.4, Balance of payments: 20 multiple choice questions for the Pearson Edexcel Economics (9EC0), Unit 2: Theme 2: The UK economy – performance and policies, written with Revision Ninja.

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The 20 questions

  1. Which component of the balance of payments measures net trade, primary income, and secondary income?

    • Capital buffer
    • Capital account
    • Financial account
    • Current account

  2. Where is foreign direct investment into UK shares recorded on the balance of payments?

    • Trade account
    • Current account
    • Financial account
    • Capital account

  3. What occurs when total debit flows exceed total credit flows on the current account?

    • Budget deficit
    • Current account deficit
    • Capital account surplus
    • Current account surplus

  4. How is a persistent current account deficit financed on the balance of payments?

    • Financial account surplus
    • Budget surplus
    • Financial account deficit
    • Fiscal deficit

  5. What impact does a persistent current account deficit usually have on foreign debt?

    • Increases external debt
    • Eliminates national debt
    • Reduces interest rates
    • Decreases external debt

  6. What effect does an exchange rate appreciation usually have on the current account deficit?

    • Has no effect
    • Eliminates the deficit
    • Decreases the deficit
    • Increases the deficit

  7. How does a recession in a major trading partner affect domestic export demand?

    • Stabilises foreign income
    • Increases export demand
    • Reduces export demand
    • Increases import tariffs

  8. What does a positive current account balance indicate about a nation's trade and income flows?

    • Inflows exceed outflows
    • Exports equal imports
    • Budget deficit
    • Outflows exceed inflows

  9. How is revenue from selling UK software to a German firm recorded in the current account?

    • Credit entry
    • Debit entry
    • Capital transfer
    • Financial account inflow

  10. Which economic transaction is classified as a UK service export on the current account?

    • Foreign direct investment
    • Overseas visitor spending
    • Buying foreign shares
    • Importing machinery

  11. Which exchange rate change helps reduce a current account deficit over time?

    • Currency appreciation
    • Fixed exchange rate
    • Currency revaluation
    • Currency depreciation

  12. A country has exports of 300 billion, imports of 340 billion, net primary income of +10 billion and net secondary income of -5 billion. What is the current account balance?

    • +35 billion
    • -35 billion
    • -45 billion
    • -15 billion

  13. A country has trade in goods and services of -20 billion and primary income of +5 billion. Which is its current account before secondary income?

    • +15 billion
    • +25 billion
    • -15 billion
    • -25 billion

  14. Which balance of payments account theoretically offsets a current account deficit in a floating exchange rate system?

    • Capital and financial account
    • Primary income account
    • Official reserves account
    • Secondary income account

  15. Why is a persistent current account deficit a major macro concern?

    • Causes hyperinflation
    • Reduces national debt
    • Signals low competitiveness
    • Increases domestic savings

  16. What impact does a global economic slowdown have on a country's trade balance?

    • Deteriorates the balance
    • Improves the balance
    • Eliminates the deficit
    • Increases service exports

  17. When might a current account deficit be considered beneficial for an economy?

    • Reducing foreign ownership
    • Funding current consumption
    • Funding capital investment
    • Increasing import tariffs

  18. Exports are £200bn and imports are £180bn. What is the trade balance?

    • £20bn deficit
    • £380bn deficit
    • £20bn surplus
    • £380bn surplus

  19. Which item is classified under primary income in the current account?

    • Investment profits
    • Export revenues
    • Foreign aid transfers
    • Import payments

  20. How does higher UK inflation relative to trading partners affect international competitiveness?

    • Reduces competitiveness
    • Lowers import prices
    • Increases competitiveness
    • Has no effect

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