Current account of balance of payments — practice question

In 2020, Jordan recorded a deficit on the current account of its balance of payments. That deficit helped to reduce Jordan’s total demand in that year. The lower total demand was the chief reason that the number of workers was higher than the number of jobs available. Employment decreased in most of Jordan’s industries. A key industry in Jordan is tourism. In recent years, some Jordanian tourism firms have merged. These mergers lowered the prices of some holidays and improved their quality. Jordan’s population is still rising. This is mainly because net immigration is positive, although the birth rate is also above the death rate. Table 1.1 shows the birth rate and average age in six countries in 2020. Changes in the size of a country’s population affect the market for many products, including clothing. A larger population also increases pressure on the country’s energy supplies. The Jordanian government has several major renewable energy projects and intends to spend even more on such projects. Greater use of renewable energy, including wind and solar power, can cut environmental harm and may be relatively inexpensive in the long term. However, most renewable energy generators, including hydroelectric power stations, are expensive to construct. In addition, wind turbines and solar panels depend on favourable weather conditions. Some government spending in Jordan is paid for by borrowing. At the beginning of 2021, the Jordanian central bank was expected to increase the interest rate. This was because total demand was forecast to rise and positive economic growth was expected to return. A higher interest rate could affect Jordan’s foreign exchange rate and investment.