Balance of Payments

d) Surplus or balance on the current account of the balance of payments: • definition of current account on the balance of payments • current account deficits and surpluses • trade in goods (visibles) and services (invisibles) • relationship between current account and exchange rates • examples of real-world exchange rates • reasons for deficits and surpluses: o quality of domestic goods o quality of foreign goods o price of domestic goods o price of foreign goods o exchange rates between countries. : • impact of current account deficit: o leakage from the economy o can be inflationary if prices rise abroad o low demand for our exports o problems finding foreign reserves to fund the deficit.