What is the calculation for the balance of payments current account?

The balance of payments is simply exports minus imports.





When you have a surplus, the country exports more than it imports. EG Japan





When you have a deficit, the country imports more than it exports. EG USA|||The current account in the balance of payments measures the perfomance of a country in international trade by measuring the value of money paid for its imports and the value of money received through exports. It also includes the income received by people temporarily working overseas, flows of money in and out of the country for interest payments, profits and dividends as well as Central Government payments overseas such as foreign aid and contributions to the EU (known as current transfers)


So, basically the balance on current account can be calculated by this equation = balance on visible trade + balance on invisible trade + income + current transfers.


*Visible trade is the trade in goods which can be seen like oil/machinery..


*Invisible trade is the trade in services like banking and tourism


*The balance on these trades is the difference between the exports and imports.





Disadvantages of a current account surplus


- This means that exports are exceeding imports which suggests that the value of the pound might be too low as the demand for exports is high. If the value of the pound is low, it could cause imported inflation as imports will appear more expensive, even if their prices are not increasing.


- Exports are injections into the circular flow of income so this will increase the amount of money in an economy. This might result in aggregate demand shifting to the right which will lead to demand-pull inflation if producers cannot increase their production at the same rate.


- This might lead to a misallocation of resources as too much might be allocated for exports resulting in less available for the domestic market.





Hope that helped :)