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QUESTION AND ANSWER

The balance of payments

The current account of the balance of payments is often perceived as one of the key indicators of an economy’s performance. In this column, David Horner offers guidance on tackling examination questions that deal with this topic

The economics A-level specifications all identify that the UK government has a number of macroeconomic objectives — low and stable inflation, low unemployment, economic growth (not too low but not too high) and some form of equilibrium on the current account of the balance of payments.

Certainly, the first three of these objectives are frequently mentioned in the news, and it is not too difficult to see why a government would like to achieve these objectives. Even those who have not studied economics probably know that rampant inflation can destroy a currency, that low growth leads to jobs losses and stagnant or falling incomes, and that unemployment generates many costs to the individual, the local community and to the whole economy.

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Demand and supply analysis

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