Correcting Balance of Payments Imbalances (Online Lesson)

This online lesson looks at the economic impact of current account imbalances, and considers policies that governments can use to restore a better balance on the Balance of Payments.

WHAT YOU'LL COVER IN THIS ONLINE LESSON

• examples of economies with imbalances on their current account on the Balance of Payments
• the impact of current account deficits and current account surpluses
• demand-side and supply-side policies for correcting imbalances (covering expenditure-switching and expenditure-reducing policies)

Additional teacher guidance is available at the end of this lesson. Thank you to Cathy Williams and Jon Clark for their contributions to this lesson.

HOW TO USE THIS ONLINE LESSON

Follow along in order of the activities shown below. Some are interactive game-based activities, designed to test your understanding and application of the balance of payments. Others are based on short videos, including activities for you to think about and try at home, as well as some extra worksheet-based activities.

If you would like to download a simple PDF worksheet to accompany the video activities, you can find it here. You can print it off and annotate it for your own notes, or make your own notes on a separate piece of paper to add to your school/college file.

ACTIVITY 1: GAME - BALANCE OF PAYMENTS KEY TERM REVIEW

Test your knowledge of the structure of the Balance of Payments by having a go at this interactive Clear The Deck activity. If you find this difficult, you could take a look at the Online Lesson focusing on introducing the Balance of Payments and its various accounts.

ACTIVITY 2: VIDEO - OVERVIEW OF IMBALANCES

This video covers the nature of imbalances on the Balance of Payments, specifically the current account, and introduces some real-world application too.

ACTIVITY 3: VIDEO - CAUSES OF IMBALANCES

In this video, we explore the likely causes of imbalances on the current account. It's important to remember that there is a wide range of possible causes...so any policies to tackle the issue must be in line with the cause.

ACTIVITY 4: READING AND RESEARCH - THE UK'S CURRENT ACCOUNT DEFICIT

Is the UK's current account deficit really a problem? Take a look at the articles below, to help you make up your own mind:

• this BBC news article on the impact of the deficit
• this view from The Guardian that the UK's deficit needs "urgent attention"
• this article from the Economist magazine suggesting that the deficit is showing signs of shrinking, and the implications of that
• this analysis from Capital Economicsabout the likelihood of the current account deficit being problematic for the UK
• finally, this piece from the OMFIF think tank about how the UK's ability to deal with coronavirus is impacted by its current account deficit

ACTIVITY 5: ESSAY ANALYSIS

For this activity, you will need to download this example essay on the impact of the UK's current account deficit. Read through the essay and:

1. highlight any use of a technical economic term - make sure you can define it!
2. highlight, in a different colour, any "connective phrase" used in analysis and evaluation - how long are the chains of analysis? how does this help the candidate to build marks?
3. carefully read how the candidate has accompanied diagrams with written analysis
4. write a plan for the same essay title, using the content of this essay as well as your previous reading - how similar to this essay would yours be?

ACTIVITY 6: VIDEO - POLICIES

In this final video, we look at the different policy options available to governments if they choose to correct a current account imbalance. In particular, we look at demand-side (i.e. expenditure switching and expenditure reducing) policies and supply-side policies.

ACTIVITY 7: MCQ QUIZ

Download this set of multiple choice questions, designed to review your knowledge of the balance of payments and policies for tackling imbalances.

ADDITIONAL TEACHER GUIDANCE

This lesson follows on from the introduction lesson to the Balance of Payments. It comprises:

• around 25 minutes of guided video content, spread across 3 videos
• around 15-20 minutes of student thinking and activity time across those videos
• 1 interactive game, designed to review knowledge of the Balance of Payments and its structure
• a reading and essay task, focusing on the impact of the UK's current account deficit
• a multiple choice quiz (answers available here)