IGCSE Economics Paper-2: Specimen Questions with Answers 18 - 18 of 100

Passage

Total of credit side of the balance of payment should always equal the debit side.

Question 18 (2 of 5 Based on Passage)

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Explain the various balances in balance of payment.

Explanation

The balance of payment is an application of double entry book keeping and if entry is done in a proper way, debits and credit will always balance hence in a way, the balance of payment will be in equilibrium.

  • Balance of trade: Balance of trade so the difference in the revenue through exports and foreign currency spent on imports. Balance of trade need not always balance. If the country exports more goods than it imports it is said to have favorable balance, vice versa.
  • Balance of services: It is the difference between export of services and import of services. It is calculated by the difference in export and import of services
  • Balance of unrequited transfers: It is the difference between unrequited receipts and unrequited payments. Example- gifts, indemnity etc.
  • Balance on current account: It shows the flow aspect of a country՚s international transactions. Balance on current account is measured by adding up the balance of trade, services, and unrequited transfers. All goods and services produced within the country and exported during the time period in question are entered on the credit side.
  • Balance on capital account: All items of a flow nature should be included in the balance of current account and that all its expressing changes in stock should enter the balance of capital account. If a country has a deficit on the balance of current account, the country has spent more abroad during the period the than it has earned.
Balance of Payments

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