2. Economic Environment Flashcards
Key terms and ideas from chapter. Not comprehensive . Biased to what i need to learn.
Gross domestic product
Consumer spending + government spending + investment + exports – imports = GDP.
Trade balance
Exports minus imports
If exports exceed imports it is a positive trade balance called a surplus
If exports less than imports, negative, called a deficit.
Can be subdivided to visible and invisible
Visible and invisible trade balance
Visible : goods, such as those arising from the trade of raw materials and manufactured goods
Invisible: services such as banking, financial services and tourism
Trade balance of post industrial country
Visible trade deficit invisible trade surplus
Ie net imports goods, net exports services
Current account
Measures a country’s net income.
Net trade in goods and services + net earnings on cross border investments + remittances from workers abroad
Should be equal but opposite to capital account balance
Includes trade balance (net trade in goods and services)
Capital account
International capital transactions. Measures changes in a countries ownership of assets.
Includes
- foreign direct investment where an overseas firm acquires a new plant or an existing business;
- portfolio investment ie trading in stocks and bonds;
- other investments eg transactions in currency and bank deposits.
Balance of payments
Current account +capital account =0
Note current account includes trade balance.
Public Sector Net Cash Requirement (PSNCR)
The difference each year between government expenditure and government income (eg taxes)
How does a buoyant economy impact pnscr?
Government income tends to exceed expenditure , as substantial tax revenue from corporate profits and high employment.
Gross national product
Measures the output of a countries residents regardless of location of economic activity
GNP =GDP + investment income from overseas - foreign residents investment income earned within the country
