Syllabus: Pearson - Pearson - A Level Economics
Module: 2.1 Measures of Economic Performance
Lesson: 2.1.4 Balance of Payments

Introduction

This topic aligns with the Pearson Edexcel A Level Economics syllabus, specifically section 2.1.4. Students explore the balance of payments (BoP)—a comprehensive record of a country’s transactions with the rest of the world—and its role in macroeconomic analysis expert-tuition.co.uk+1Edexcel Economics Revision+1Tutor2uTutor2u+2Enterprise Skills Ltd+2expert-tuition.co.uk+2Pearson Qualifications+12Pearson Qualifications+12Tutor2u+12. Understanding BoP is vital for interpreting trade performance, assessing exchange rate impacts and shaping policy responses.

Key Concepts

• Structure of the BoP: Divided into the current account (trade in goods and services; primary and secondary income) and the capital and financial account Pearson Qualifications+5Tutor2u+5Enterprise Skills Ltd+5.

• Current Account Components:

  1. Trade in goods

  2. Trade in services

  3. Income (wages, dividends, interest)

  4. Transfers (e.g., remittances) Quizlet+11Tutor2u+11Studocu+11

• Surplus vs Deficit:

  • Surplus: exports exceed imports

  • Deficit: imports exceed exports Tutor2u+3Tutor2u+3Studocu+3

• Inter-account Balance: A current account deficit must be offset by a capital/financial account surplus (and vice versa), plus a balancing item due to statistical discrepancies Edexcel Economics Revision+11Save My Exams+11Wikipedia+11.

• Causes of Imbalances: Include exchange rate values, inflation rates, productivity differences and saving/investment behaviours Tutor2u+7Save My Exams+7Pearson Qualifications+7.

• Policy Responses: Expenditure-switching (e.g. devaluation) and expenditure-reducing measures (e.g. fiscal tightening), assessed for their wider macroeconomic impact Enterprise Skills Ltd+1Pearson Qualifications+1.

Real‑World Relevance

• UK Example: The UK typically runs deficits on goods due to weak manufacturing, but gains surpluses in services—especially financial services from London—resulting in a mixed current account position Studocu.

• Germany vs US: Germany maintains long-standing surpluses driven by strong exports, in contrast to the US with persistent deficits Enterprise Skills Ltd.

• Global Impact: BoP imbalances can contribute to currency crises (e.g. in emerging markets), prompt central bank intervention or lead to exchange rate adjustments under floating regimes Wikipedia+1Quizlet+1.

How It’s Assessed

• Exam question types:

  • Short-answer (e.g. “Define current account”)

  • Data-response tasks (interpreting real BoP statistics)

  • Essay questions (evaluate policies to correct BoP imbalances) Study Rocket+12Enterprise Skills Ltd+12Pearson Qualifications+12.

• Command words: Define, explain, analyse, evaluate, calculate.

• Marking criteria: Focus on understanding of BoP components, application to real data, linkage to other macro objectives, and critical evaluation of policy trade‑offs.

Enterprise Skills Integration

• Analytical thinking: Interpreting BoP data to identify trends and causal factors

• Decision-making: Choosing appropriate policy tools to respond to deficits or surpluses

• Problem-solving: Simulating government responses to BoP crises in classroom activities (e.g. role‑play central bank, Treasury)

• Collaborative working: Group data analysis followed by presentation of policy recommendations

Careers Links

• Relevant roles:

  • Trade Economist

  • Macroeconomic Analyst (e.g. central bank, ONS, Treasury)

  • International Business Strategist

  • Currency Risk Consultant
    These are aligned with Gatsby Benchmarks for career-informed teaching, highlighting paths for students interested in economics, finance or public policy.

Teaching Notes

• Starter idea: Use ONS or IMF data to look at recent UK balance of payments figures; first, identify trends then hypothesise causes.

• Common pitfalls:

  • Confusing current and capital accounts

  • Thinking BoP always balances zero (explicitly teach balancing item and statistical error)

  • Over‑simplifying policy impacts—emphasise real‑world trade‑offs

• Extensions:

  • Explore Marshall–Lerner condition and J‑curve effects on currency depreciation

  • Compare fixed vs floating exchange‑rate regimes and their BoP implications

  • Case study on emerging market currency crisis triggered by capital flight