← International trade

Trade & the balance of payments

Why we trade; what the current account records; what a deficit means.

BOP in one breath

• Current account: goods + services + investment income.
• Deficit: NZ spends more abroad than it earns → funded by capital inflows.
• Judge the deficit by what the inflows FUND (productive investment vs consumption).

Exchange-rate direction	Effect on current account over time
Depreciation	Tends to IMPROVE it — cheaper exports sell more, dearer imports bought less
Appreciation	Tends to WORSEN it — dearer exports sell less, cheaper imports bought more

Practice for this standard covers the whole topic — flashcards and quiz.