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Balance of Payments · Paper 1 — Free Economics HL Practice Questions
1FoundationSAQ-SCurrent account, capital account and financial account2 marksPaper 1~3 min
Define the current account of the balance of payments, identifying two of its components.
[2]
Solutions
2MasterySAQ-SForeign direct investment and portfolio investment4 marksPaper 1~6 min
The Nigerian government announced a policy to attract foreign direct investment (FDI) into its lithium mining sector: a 10-year tax holiday, improved infrastructure in mining regions, and streamlined approval processes. Simultaneously, political instability in a neighbouring country increased perceived risk foreign investors considering the region.
(a)
Draw a fully labelled demand supply for FDI flows into Nigeria's lithium sector, showing an initial equilibrium. Label the vertical axis "risk-adjusted rate of return" and the horizontal axis "quantity of FDI." [1 mark]
(b)
Using your , show and explain the effect of each of the two factors on the FDI market. [2 marks]
(c)
Evaluate the net effect of these two opposing forces on the equilibrium quantity of FDI flowing into Nigeria's lithium sector. [1 mark]
Solutions
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