What is the Current Account

The current account is a section in the Balance of Payments, which shows a country's transactions with goods, services and income. It is made up of four different parts.

1) The balance of trade in goods

2) The balance of trade in services

3) Net income flows (wages and investment income)

4) Net current transfers (unilateral flows with nothing received in return e.g. aid) 

Each transaction is entered into the account as a credit (e.g. exports, money into the country) or debit (e.g. imports, money out of the country).

The current account can be either in surplus or in deficit. If all the current accounts in the world were added they would sum to 0 (assuming you add the surplus and minus the deficit) as each credit in one country, is a debit in another.

The main factors effecting the current account are,

1) Competitiveness:

This is a long run indicator to whether a country will reduce its deficit (or increase its surplus). The more competitive a country is, the more it exports and the less it imports, as domestic goods are more affordable or better quality than foreign goods. Competitiveness depends on unit labour costs, relative wages and infrastructure.

2) Economic Growth 

With an increase in economic growth, it is likely that consumption increases. This may mean that more imports as consumed, causing a fall in the current account, provided ceteris paribus (all else is equal).

3) Exchange Rates

With a depreciation in the exchange rate, a currency becomes relatively more competitive, making exports cheaper for foreign countries and imports more expensive for the domestic country. This will lead to an improvement in the current account.

Sahiti S. GCSE Maths tutor, A Level Economics tutor, A Level Maths tutor

1 year ago

Answered by Sahiti, an A Level Economics tutor with MyTutor

Still stuck? Get one-to-one help from a personally interviewed subject specialist


Charlie N. GCSE Economics tutor, IB Economics tutor, A Level Economic...
View profile
£20 /hr

Charlie N.

Degree: Economics (Bachelors) - Bristol University

Subjects offered: Economics, Philosophy+ 1 more


“About Me I am currently studying economics at the University of Bristol, a subject I have always been passionate about. From a younger age it always interested me and being able to study it first at A level and now at degree level, ...”

MyTutor guarantee

Hibba S. A Level Biology tutor, GCSE Biology tutor, GCSE Chemistry tu...
View profile
£20 /hr

Hibba S.

Degree: BSc Biomedical Science (Bachelors) - Queen Mary, London University

Subjects offered: Economics, Science+ 3 more

Business Studies

“I am a BSc Biomedical student at Queen Mary University London. I enjoyed learning both Economics and Sciences in A-levels, which I hope I can inspire in you to! From GCSE’s to A levels I have been involved in many extra-curricular ac...”

PremiumJon S. GCSE Biology tutor, GCSE Maths tutor, A Level Economics tutor,...
View profile
£24 /hr

Jon S.

Degree: Economics & Bioscience (Bachelors) - Exeter University

Subjects offered: Economics, Maths+ 1 more


“I'm a first year student at Exeter University studying  Bioscience & Economics. I've enjoyed teaching for over a year now and I'm hoping my tutorials engage you with your subject, or at the very least help you get the grade you are lo...”

About the author

Sahiti S. GCSE Maths tutor, A Level Economics tutor, A Level Maths tutor
View profile

Sahiti S.

Currently unavailable: for new students

Degree: Natural Sciences (Bachelors) - Durham University

Subjects offered: Economics, Maths


“Hi, my name is Sahiti and I am a second year natural sciences student (studying maths, economics and computer science).  Why me? I am passionate about both maths and economics, which both make up a major part of my degree. I l love t...”

You may also like...

Posts by Sahiti

How do you solve the simultaneous equations 3x + 4y = 5 and 2x – 3y = 9

If x = cot(y) what is dy/dx?

What is the Current Account

Other A Level Economics questions

What is the best way to revise for Transport Economics?

What is the best method of structuring an Economics Essay

Define the term ‘derived demand’

Why have inequalities increased in recent years?

View A Level Economics tutors


We use cookies to improve our service. By continuing to use this website, we'll assume that you're OK with this. Dismiss