Pearson Edexcel International GCSE Economics: The current account (4EC1) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover statement 2.1.1 d) of the Pearson Edexcel International GCSE Economics (4EC1) specification, Issue 3: the current account of the balance of payments. The specification has one tier of entry. All countries, currencies and figures are invented. Teaching is in the study guide and the revision notes. See the course hub, the printable checklist and the free diagnostics.

Questions

1. State what is meant by a current account deficit. [2]

2. Classify each transaction as a visible export, visible import, invisible export or invisible import for Country W. [4]

(a) A foreign tourist pays for a hotel stay in Country W. (b) A firm in Country W buys machinery from abroad. (c) A foreign airline pays Country W’s ports to handle its cargo. (d) A foreign shop buys fabric made in Country W.

3. Country W had visible exports of 90 and visible imports of 76. Invisible exports were 24 and invisible imports were 39. All figures are billions of its currency. Work out the current account balance and say if the result is a deficit or a surplus. [4]

4. Country Y has a current account surplus of 9 billion and GDP of 360 billion. Calculate the surplus as a percentage of GDP. [3]

5. The exchange rate between Country T’s currency (the tal) and Country V’s currency (the cor) changes from 1 tal = 0.80 cor to 1 tal = 0.64 cor.

(a) Calculate the percentage change in the value of the tal. [2] (b) A tool made in Country T costs 500 tals. Calculate its price in cors before and after the change. [2] (c) A good made in Country V costs 120 cors. Calculate its price in tals before and after the change, and the percentage change. [3]

6. Explain two reasons why a country might run a current account deficit. [4]

7. Explain how a current account deficit can cause a leakage from the economy. [3]

8. A bakery in Country T has total costs of 250 tals per batch. Imported ingredients make up 40% of these costs. The foreign price of the ingredients rises by 15%. Calculate the new cost of a batch and the percentage increase, then explain why this might be inflationary. [4]

9. Country X holds foreign reserves of 45 billion and runs a current account deficit of 9 billion a year.

(a) Calculate how long the reserves last if they alone fund the deficit. [2] (b) Explain why it is a problem when reserves run low. [3]

10. Explain why a persistent current account deficit tends to cause a fall in the value of a currency whose rate is determined by market forces. [4]

11. The table shows the trade of Country U (illustrative, billions of its currency).

	Year 1 exports	Year 1 imports	Year 2 exports	Year 2 imports
Goods	75	92	70	94
Services	48	30	50	33

(a) Calculate the current account balance in year 1. [3] (b) Calculate the current account balance in year 2. [3] (c) Describe the change between the two years. [2] (d) Suggest two possible reasons for the change in the balance on goods. [4]

12. Evaluate the view that a current account deficit is always harmful to an economy. [8]

Answers

1. Money going out of the country for imports of goods and services [1] is greater than money coming in from exports of goods and services in the period [1]. [2] Examiner insight: Definitions do better when they mention goods and services and compare what goes out with what comes in. “A country spends too much” is too vague to show you understand the term.

2. (a) Invisible export, because it is a service and money comes in [1]. (b) Visible import, because it is a good and money goes out [1]. (c) Invisible export, a service sold to a foreigner [1]. (d) Visible export, a good sold abroad [1]. [4] Examiner insight: Give the direction and the type for each item. Many errors come from treating money spent by foreign visitors as an import because it feels like “foreign” spending.

3. Visible balance = 90 - 76 = +14 [1]. Invisible balance = 24 - 39 = -15 [1]. Current account = 14 + (-15) = -1 billion [1]. This is a deficit [1]. [4] Examiner insight: Show each balance with its sign, then add. State deficit or surplus in words as well as giving the number, and include units.

4. Surplus as % of GDP = surplus / GDP x 100 [1] = 9 / 360 x 100 [1] = 2.5% [1]. [3] Examiner insight: Write the formula or the substitution so the method is visible. Make sure the percentage uses GDP as the denominator, not the exports figure.

5. (a) (0.64 - 0.80) / 0.80 x 100 [1] = -20% (a depreciation) [1]. (b) Before: 500 x 0.80 = 400 cors [1]. After: 500 x 0.64 = 320 cors [1]. (c) Before: 120 / 0.80 = 150 tals [1]. After: 120 / 0.64 = 187.5 tals [1]. Change = (187.5 - 150) / 150 x 100 = +25% [1]. [7] Examiner insight: Work out which way to go: multiply to convert tals to cors, divide to convert cors to tals. Using the wrong operation is a common slip, and a quick check that the export gets cheaper abroad catches it.

6. Any two reasons, each as a point plus development. Poor quality of domestic goods [1], so buyers switch to better imported goods, raising imports and lowering exports [1]. High domestic prices relative to foreign rivals [1], so exports fall and imports rise [1]. Other acceptable reasons: high-quality foreign goods, low foreign prices, or a rising exchange rate that makes exports dearer and imports cheaper. [4] Examiner insight: Each reason needs a link to exports or imports to be fully developed. Two reasons that are really the same point, such as “high price” and “expensive”, show less range than two different causes.

7. Imports mean money paid to foreign producers [1], which leaves the circular flow and is not spent on home-produced output [1]. If exports bring in less than is leaving, the net outflow reduces total spending and incomes in the economy [1]. [3] Examiner insight: Use the term leakage and explain what actually leaves. Simply restating “money leaves the country” without the effect on spending in the home economy stops short of an explanation.

8. Imported ingredients = 40% of 250 = 100 tals [1]. New cost = 100 x 1.15 = 115, so total = 150 + 115 = 265 tals [1]. Increase = 15 / 250 x 100 = 6% [1]. Higher costs may lead firms to raise prices, which pushes up the general price level [1]. [4] Examiner insight: Apply the percentage only to the imported part, not the full 250. Finish with the link to prices, since the question asks why it is inflationary.

9. (a) 45 / 9 [1] = 5 years [1]. (b) The deficit must be paid for in foreign currency [1]. When reserves are low the country must borrow or sell assets abroad [1], which adds debt or loses ownership, and it may struggle to pay for essential imports [1]. [5] Examiner insight: State what reserves are used for before saying what goes wrong. Strong answers show a consequence for the economy, not only “the government runs out of money”.

10. A deficit means more of the currency is supplied than demanded [1]. Residents sell the currency to buy foreign currency for imports [1], while foreigners buy less of it because exports are low [1]. With supply above demand, the price of the currency falls [1]. [4] Examiner insight: Name both demand and supply and say which is bigger. Answers that jump straight to “so the currency falls” skip the chain that earns the marks.

11. (a) Goods: 75 - 92 = -17 [1]. Services: 48 - 30 = +18 [1]. Current account = +1 billion [1]. (b) Goods: 70 - 94 = -24 [1]. Services: 50 - 33 = +17 [1]. Current account = -7 billion [1]. (c) The account moves from a small surplus to a deficit [1], a worsening of 8 billion, mainly due to the goods balance falling by 7 [1]. (d) Exports of goods fell from 75 to 70, which may reflect lower quality or higher prices relative to rivals [1][1]. Imports of goods rose from 92 to 94, which may reflect a stronger currency or cheaper or better foreign goods [1][1]. [12] Examiner insight: For a suggestion, tie each reason to the data given (exports fell, imports rose) rather than listing generic causes. Quote the figures in the description.

12. Arguments that a deficit is harmful (up to 4):

• Leakage: more money leaves than enters, reducing spending at home [1].
• Weak export demand may mean lost output and jobs [1].
• Imported costs can raise prices if foreign prices or the exchange rate move against the country [1].
• Reserves are limited, so a large long-term deficit may be hard to fund [1]. Arguments that it is not always harmful (up to 3):
• A small deficit relative to GDP can be easily funded [1].
• Imports of machinery and materials can raise future output [1].
• Consumers gain access to cheaper or better goods [1]. A balanced answer reaches a judgement, for example that the size and cause of the deficit and the reserves available decide how harmful it is [1]. Credit is for developed points up to a total of [8]. Examiner insight: Answers gain credit for a judgement supported by the argument, not for a long list. Avoid “it depends” alone, and say what it depends on, such as size, cause and reserves.

Where marks are usually lost

• Giving a number with no sign and no label of deficit or surplus.
• Mixing up exports and imports when the product is a service.
• Multiplying when you should divide in an exchange rate conversion.
• Using the wrong base in a percentage change: always divide by the original.
• Giving a reason without saying whether it affects exports or imports.
• Describing a deficit as “bad” with no consequence explained.
• Applying a price rise to total costs instead of to the imported part.
• Writing a conclusion in the evaluation that is not supported by the points above it.

Next steps

• Read the revision notes.
• Review the study guide.
• Return to the Edexcel IGCSE Economics hub and the printable checklist.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Pearson Edexcel International GCSE in Economics (4EC1) specification, Issue 3, February 2026, published by Pearson Education Limited, section 2.1.1 d).