The Balance of Payments: Further Exploration (AQA A-Level Economics): Flashcards

$AD = C + I + G + (X - M)$

$X > M$ (exports exceed imports)

$X < M$ (imports exceed exports)

Growth from increased competitiveness of exporting industries

Export + import elasticities sum > 1 for devaluation to work

Deflation, direct controls, devaluation

Reduces deficit by lowering aggregate demand

Switches demand from imports to domestic goods

Current account worsens before improving after devaluation

Profits, dividends, interest on foreign investments