Cambridge International as and a level Economics Ebook

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Chapter 4: The macroeconomy 
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Income: This includes income in the form of profits, 
interest and dividends earned on direct investment 
abroad and foreign earnings on investment in the 
country. For example, dividends paid on foreign shares 
by residents in the country appear as credit items, while 
interest paid to foreigners on bank accounts they hold in 
the country are debit items.
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Current transfers: These cover payments made and 
receipts received for which there is no corresponding 
exchange of an actual good or service. They include 
government transfers such as payments to and receipts 
from international organisations and foreign aid. 
Transfers by private individuals are also included in this 
part of the current account. One such transfer is workers’ 
remittances. This transfer of money from people working 
in a foreign country back to their relatives at home forms 
a large credit item in the case of some countries, for 
instance the Philippines.
SELF-ASSESSMENT TASK 
4.4
Inflation in Latin America
Inflation rates have varied in Latin America in recent 
years. In May 2013, inflation in Venezuela reached 54%, 
one of the highest in the world. Prices were driven up 
largely by higher food prices. Venezuela’s population 
experienced food shortages, lower real wages and a 
reduction in the value of their savings. The government 
imposed price controls on a range of products and the 
president stated these would reverse the rise in prices 
and might even result in negative inflation.
Higher food prices, along with a falling foreign exchange 
rate, also caused Brazil’s inflation rate to rise in 2013. 
In April of that year the inflation rate rose to 6.6%, with 
more than two-thirds of the items in the country’s 
consumer price index rising in price.
Table 4.2 
shows the inflation rates in Venezuela, Brazil 
and Mexico over recent years.
Read the feature below and then answer the questions that follow.