2.1.1 Current Account Flashcards
Balance of payments
Record of all transactions in international trade
Balance of trade or visible balance
Difference between visible exports and imports
Visible trade
Buying or selling physical goods eg textiles
- visible balance means more imports than exports
What is invisible trade and examples
Trade that involves exchange of services such as transport or financial
Or interest rate
What is the difference between primary and secondary income?
Primary is money received from the loan of production factors abroad whereas secondary is government transfers to and from overseas
What happens if a country has high currency.
Prices of exports increase while imports decrease. This may lead to less exports sold, so a negative impact will occur on current account deficit
How does quality of domestic lead to surplus or deficit?
If a country is well known for good qualify, exports will increase also, demand from in country consumers will rise. This will help current account
How dues quality of foreign goods effect?
If quality overseas is superior, there will be an increase in demand for imports. This will have a negative effecton current balances a deficit.
Also less demand for domestic products so less output and employment
How does price of domestic goods effect
If prices rapidly increase, buyers from overseas will decrease which worsens the current balance
Price of foreign goods.
If foreign goods are cheeper than domestic goods, there will be demand for imports which worsens current account
How does exchange rate effect surplus or deficit
Exchange rate effect prices, if exchange rate is too strong, demand for exports will fall.
How does persistent current deficit impact leakage of economy
Country become dependent on imports so consumers are buying outside goods. So money flowed overseas businesses. This is a leakage which can lead to lower output and employment levels
How does deficit impact inflation
If prices of imports go up it will be counted in CPI which results in general prices rising.
Deficit impact low demand for exports
Struggling to sell goods abroad might mean prices are too high or quality not goof
May experience decline in economic growth and rise in unemployment
Domestic firms struggle because no competition
Funding the deficit
They will beef to pay by foreign currency for the imports which they mean not have to they need to loan which can lead debt.
