Deficits & Surpluses (CIE IGCSE Economics)

Relatively high value of the country’s currency

Relatively high rate of inflation

• Low productivity raises costs
• Exporting firms with low productivity may find themselves at a price & cost disadvantage in overseas markets which will decrease competitiveness & the level of exports
  
  

• Currency appreciation makes a country's exports more expensive relative to other nations
• Foreign buyers look for substitute products which are priced lower
• Exports fall & the balance on the current account worsens
• Similarly, currency appreciation makes imports cheaper
• Domestic consumers may switch demand to foreign goods & as imports rise, the balance on the current account worsens

• A relatively high rate of inflation makes a country's exports more expensive than other nations
• Foreign buyers look for substitute products which are priced lower
• Exports fall & the balance on the current account worsens
• Similarly, high inflation may mean that goods/services are cheaper in other countries
• Domestic consumers may switch demand to foreign goods & as imports rise, the balance on the current account worsens

Rapid economic growth resulting in increased imports

Non-price factors such as poor quality & design

• Rapid economic growth raises household income
• Households respond by purchasing goods/services from abroad & the balance on the current account worsens
  
  

• When a country develops a reputation for poor quality & design, its exports fall as foreign buyers look for better substitutes elsewhere
• Domestic buyers who are able to shop abroad also choose to buy better quality products elsewhere & the level of imports rise

Relatively low value of the country’s currency

Relatively low rate of inflation

• High productivity decreases costs
• Exporting firms with high productivity may find themselves at a price & cost advantage in overseas markets which will increase competitiveness & the level of exports
  
  

• Currency depreciation makes a country's exports less expensive relative to other nations
• Foreign buyers increase their purchases & the level of exports rises
• Similarly, currency depreciation makes imports ,ore expensive
• Domestic consumers may switch demand to locally produced products & the level of imports falls

• A relatively low rate of inflation makes a country's exports less expensive than other nations
• Foreign buyers increase their purchases & the level of exports rises, improving the balance on the current account