Lesson 4.1.7

4.1.7 Balance of payments Quiz: Pearson Edexcel Economics, Unit 4

20 questions

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Lesson 4.1.7, Balance of payments: 20 multiple choice questions for the Pearson Edexcel Economics (9EC0), Unit 4: Theme 4: A global perspective, written with Revision Ninja.

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The 20 questions

  1. Which component is recorded in the current account of the balance of payments?

    • Primary income
    • Capital transfers
    • Direct investment
    • Portfolio investment

  2. Which item is recorded in the financial account of the balance of payments?

    • Foreign direct investment
    • Secondary income transfers
    • Net trade balance
    • Primary income flows

  3. What is a primary macroeconomic cause of a current account deficit?

    • High domestic demand
    • Currency depreciation
    • High domestic saving
    • Strong export growth

  4. Goods balance is -£30bn, services +£20bn, primary -£10bn, secondary +£5bn. Calculate the current account.

    • +£15bn
    • -£25bn
    • -£15bn
    • -£5bn

  5. Which policy directly reduces a current account deficit by lowering domestic expenditure?

    • Expansionary monetary policy
    • Import tariff removal
    • Export subsidies
    • Deflationary fiscal policy

  6. Which supply-side policy helps reduce a persistent current account deficit long term?

    • Infrastructure investment
    • Interest rate hikes
    • Import tariffs
    • Currency devaluation

  7. Why might a current account deficit be sustainable for an economy?

    • Low export demand
    • Falling tax revenue
    • High consumer debt
    • High investment inflows

  8. A country has a current account deficit of £20bn. What is its financial account balance?

    • +£40bn
    • -£20bn
    • +£20bn
    • £0bn

  9. What is a major risk associated with large, persistent global trade imbalances?

    • Increased output
    • Stable exchange rates
    • Financial instability
    • Lower inflation

  10. How is a current account deficit financed under a floating exchange rate?

    • Export subsidies
    • Income tax hikes
    • Net capital inflows
    • Currency appreciation

  11. Why can a persistent current account surplus be a disadvantage for an economy?

    • Suppressed domestic consumption
    • Rising foreign reserves
    • Low unemployment
    • High economic growth

  12. Which policy aims to reduce a current account deficit by changing relative prices?

    • Income tax increase
    • Interest rate rise
    • Currency depreciation
    • Public spending cut

  13. What is recorded in the financial account of the balance of payments?

    • Cross-border capital flows
    • Government tax revenues
    • Primary income transfers
    • Trade in services

  14. Which protectionist policy directly reduces import volume to improve the current account?

    • Income tax cuts
    • Import tariffs
    • Reduced public spending
    • Higher interest rates

  15. Which economic change would most likely worsen a country's current account balance in the short run?

    • Falling domestic inflation
    • Rising foreign exchange rate
    • Falling domestic income
    • Rising domestic income

  16. Which item is recorded under secondary income in the current account?

    • Worker remittances
    • Portfolio interest
    • Investment dividends
    • Export revenues

  17. What is a major global risk of persistent current account surpluses in exporting nations?

    • Hyperinflation
    • Global trade imbalances
    • Currency devaluation
    • Rising import tariffs

  18. Financing a sustained current account deficit through foreign borrowing leads to which long-run risk?

    • Currency appreciation
    • High external debt
    • Capital flight
    • Hyperinflation

  19. Reducing a current account deficit through demand management deflationary policies can cause which outcome?

    • Demand-pull inflation
    • Currency appreciation
    • Higher unemployment
    • Rising import volume

  20. What is most likely to widen the current account deficit of an energy-importing country?

    • Rising oil prices
    • Rising export subsidies
    • Currency depreciation
    • Falling import tariffs

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