The current account records New Zealand's trade in goods and services with the rest of the world, and the income and transfers that cross its border, over a year. Each part has credits (money coming into New Zealand) and debits (money going out), and each part's balance is its credits minus its debits.
How to use it. Example is a worked example: it takes a table of figures and works out each balance in turn (press Next step), with a chart of the balances adding up to the current account. Practice gives you eight more tables to work out yourself, step by step; each answer is checked, and a common mistake is recognised and explained. From level 2 the table doesn't say which part each item belongs to, so you sort them yourself. Interpret it asks what the balances mean and how events, such as a change in the exchange rate, change them.
The parts and the steps
- Balance on goods = exports of goods − imports of goods (dairy, meat, wood and fruit out; vehicles, fuel and machinery in).
- Balance on services = exports of services − imports of services: tourism (overseas visitors here are an export; New Zealanders travelling overseas an import), education, transport and freight, finance, software, and royalties and licence fees for using patents and other intellectual property.
- Balance on goods and services = balance on goods + balance on services. This is the part of the current account that NCEA 91223 names.
- Balance on primary income = income earned on work and investment across borders: wages, interest, profits and dividends. New Zealand pays out much more than it earns, because overseas investors own many New Zealand firms and lend to New Zealand.
- Balance on secondary income = transfers, where nothing is given in return: remittances, foreign aid, gifts and pensions.
- Current account balance = goods and services + primary income + secondary income. Negative is a deficit; positive a surplus.
- As a percentage of GDP = current account balance ÷ GDP × 100, so it can be compared across years and countries.
The parts follow the IMF's current rules (BPM6), as Account Drop does: royalties and licence fees are services, and buying shares or a factory is the financial account, though the dividends and profits they earn later are primary income.
Common exam mistakes
- Subtracting the wrong way round (imports − exports), so a deficit comes out positive.
- Adding credits and debits together instead of taking one from the other.
- Putting investment income (interest, profits, dividends) in services, or transfers in primary income.
- Stopping at the balance on goods and services, or leaving out primary or secondary income, when asked for the current account.
- Forgetting to multiply by 100 for the percentage, or dividing GDP by the balance.
- Calling a smaller deficit a "surplus": a deficit that narrows is still a deficit.
All the figures here are illustrative: made up, but of about New Zealand's size. For real figures, see Stats NZ's quarterly balance of payments release.
Objective: NCEA Level 2 Economics 91223 — calculate and interpret the balance on goods and services in the current account (and the current account as a whole), and explain how changes in exports and imports affect it.
Where this fits
- AP: AP Macroeconomics
- AQA: AQA A Level Economics (7136)
- Cambridge: Cambridge IGCSE Economics (0455); Cambridge A Level Economics (9708); Cambridge AS Level Economics (9708)
- IB: IB Economics HL; IB Economics SL
- NCEA Level 2 Economics: 91223 Analyse international trade using economic concepts and models Goes beyond 91223: 91223 names only the balance on goods and services: primary and secondary income and the % of GDP go beyond it.
- NCEA Level 3 Economics: 91403 Demonstrate understanding of macro-economic influences on the New Zealand economy
- Pearson Edexcel International: Edexcel International GCSE Economics (4EC1); Edexcel International A Level Economics Goes beyond Edexcel International GCSE Economics (4EC1): 4EC1 names only trade in goods and services: primary and secondary income go beyond it.
