IBEconomicsDPHLExam Questions4. The Global Economy4.6 Balance of Payments

Balance of Payments (DP IB Economics: HL)

Exam Questions

14 mins7 questions
12 marks

Text B, Paragraph 2

Policymakers from the Bank of Thailand (BOT) and currency experts explain that the strength of the Baht is attributed to domestic factors. Thailand possesses robust economic fundamentals, including a current account surplus, substantial foreign reserves, and a central bank that is internationally trusted due to a sensible approach of maintaining relatively high central bank rates. These factors attract capital inflows, as the Baht is considered a secure currency compared to other emerging market currencies due to its stability. Consequently, it is expected that the Baht will either maintain its value or experience further appreciation, leading to further increases in speculative capital inflows and creating upward pressure on the currency.

Define the term current account surplus indicated in bold (Text B, Paragraph 2).

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22 marks

Text A, Paragraph 4

On the international stage, economists have said that the president must put his efforts into improving export competitiveness by making investments in education and training. Protectionism and intervention are also increasing as policymakers look to reduce imports, manage markets, and promote domestic industries, which has helped to turn Indonesia’s current account deficit to a surplus. However, with a strong export base specialising in coal, gold, and palm oil, the President has been warned not to damage relationships with key trading partners by limiting imports.

Define the term current account deficit indicated in bold (Text A, paragraph 4).

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32 marks

Table 3: Cambodian trade balance in goods (US$ billions)

Year

Trade Balance

2017

-3.01

2018

-4.79

2019

-5.45

2020

-1.4

2021

-9.27

2022

-7.32

Using information from Table 3, calculate the average trade balance in goods for Cambodia over the time period 2017-2022.

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42 marks

Text C, Paragraph 2
Several emerging markets, particularly in Latin America, have attracted substantial interest in portfolio investment from global investors. This trend has raised questions about the stability of capital flows and their effect on local financial markets.


Define the term portfolio investment as indicated in bold (Text C, Paragraph 2).

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52 marks

Text E, Paragraph 2
Greece has faced ongoing challenges due to its current account deficit, prompting several policy debates within the government. These discussions are centred on addressing potential long-term consequences for the economy and financial stability.

Outline one potential impact of persistent current account deficits as found in (Text E, Paragraph 2).

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62 marks

Text C, Paragraph 3
The Ministry of Finance in Thailand is conducting an economic review and exploring the relevance of the Marshall-Lerner condition in shaping future trade policies. The outcome of these reviews is expected to inform adjustments to exchange rate policies.

Define the term Marshall-Lerner condition as indicated in bold (Text C, Paragraph 3).

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72 marks

Text E, Paragraph 3
In the United Kingdom, economists are analysing the recent depreciation of the pound in light of the J-Curve effect. These findings may help inform decisions on how to manage future exchange rate fluctuations and their impact on the economy.

Define the term J-Curve effect as indicated in bold (Text E, Paragraph 3).

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