1.2.2 BoP Accounts Flashcards
Balance of payments imbalances - Definitoion
persistent deficits or surpluses mainly on the current account
Current account balance - Definition
The current account measures the difference between money and credit going in and out of an economy (through exports, imports and income paid on assets both home and abroad)
Current account surplus - Definition
When net external trade and income is positive
Current account deficit
When net external trade and income is negative leading to a net outflow of demand from the circular flow
Effective exchange rate index
The trade-weighted external value of a currency
Financial flows
Flows of capital across national borders including debt and equity
Excess savings
When gross national savings > gross capital investment
Financial account (BOP)
Balance of investment flows into and out of a country
Depreciation
Fall in the external value Of one currency against another
Marshall Lerner Condition
A devaluation of a currency improves the BOP only if the combined (or sum of) price elasticities of demand for imports & exports are greater than one.
What is the BoP?
The balance of pay ments (BOP) records all financial transactions made between consumers, businesses and the government in one country io one country with other nations
What are the 4 parts of the BoP?
- Current Account
- Capital Account
- Financial Account
- Net Errors and Omissions
What does the Current Account consist of?
- Trade in Goods & Services (Balance on Goods & Services
- Net Primary Income
- Net Secondary Income
