A persistent surplus: exporting more than importing, year after year. It brings jobs, but also problems.
What a persistent surplus can mean
Low spending at home
Households and firms save and invest abroad instead of spending at home.
Appreciation
Demand for the currency rises, so it strengthens.
Inflation
Strong export demand raises AD: prices may rise.
Jobs, for now
Export industries employ many workers.
Lost competitiveness later
A stronger currency makes exports cost more abroad.
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A surplus is not simply "good".
Gains
- Jobs in export industries.
- Foreign assets that earn income later.
- Reserves to defend the currency.
Costs
- Lower living standards now: less consumed at home.
- Appreciation hurts exporters later.
- Trading partners object: Germany's surplus, about 8% of GDP in the late 2010s, drew criticism.
The points to remember
- Write it like this: "A persistent surplus raises demand for the currency, so it appreciates, which reduces export competitiveness over time."
- "It also means consumption at home is lower than output allows."
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A Paper 1 part (a) in this shape could appear for 10 marks.
Explain two implications of a persistent surplus on the current account of a country's balance of payments.
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See the answer broken into clear points, with guidance on how each point earns marks.
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How the 10 marks are given
| Marks | What your answer needs |
|---|---|
| 9–10 | Theory fully explained, terms used correctly all the way through, the diagram included and fully explained |
| 7–8 | Theory explained, terms mostly right, the diagram included and explained |
| 5–6 | Theory partly explained, some terms, the diagram included |
| 1–4 | Theory only described or stated; few relevant terms |