2.1.4: Balance Of Payments Flashcards
What is balance of payments (BOP)?
A record of all transactions made between economic agents of one country and the rest of the world.
What is counted as a positive entry in the BOP?
Inflows of money (e.g. exports).
What is counted as a negative entry in the BOP?
Outflows of money (e.g. imports).
What are imports?
Goods/services brought in from overseas.
What are exports?
Goods/services produced in the home country for sale overseas.
What is visible trade?
The exchange of physically tangible goods between countries (e.g. coal, coffee beans).
What is invisible trade?
The exchange of physically intangible services between countries (e.g. tourism, overseas banking transactions).
What is the visible balance equation (balance of trade)?
Visible Exports - Visible Imports.
[Balance of trade in goods].
What is the invisible balance equation (balance of invisibles)?
Invisible Exports - Invisible Imports.
[Balance of trade in services].
What is income?
What is generated from loans of factors of production overseas (e.g. interest payments, profits, dividends).
What are current transfers?
Government transfers to and from overseas (e.g. EU).
A tourist going into the UK: ________ for UK. Money flows into the UK for an ________.
Export, export.
What is a current account surplus?
Where exports are higher than imports.
What is a current account deficit?
Where imports are higher than exports.
Why might there be a current account surplus?
-Closed economy (usually through tariff and non-tariff barriers. Move to a low share of national income taken up by imports).
-High domestic savings rates and a low consumption rate of goods/services.
-Undervalued exchange rate (decreases price of exports to the rest of the world and boost competitiveness).
Why might there be a current account deficit?
-Low productivity (companies become less competitive compared to overseas competitors).
-High inflation rate (exports become more expensive overseas).
-Dependancy on imports.
-Overvalued exchange rate (increases prices of exports to the rest of the world, decreasing competitiveness).
What are the UK Government’s macroeconomic objectives?
-Full employment.
-Low, stable inflation.
-A sustainable current account on the balance of payments.
-Sustainable economic growth.
Over time, the world economy has become more ________.
Interconnected.
What factors have increased the interconnectedness of economies (leading to globalisation)?
-Growing proportion of internationally traded output of an individual economy.
-More people/firms owning assets overseas (e.g. shares, loans or businesses).
-Increasing migration between countries.
-Technology being shared on a faster basis.
International trade has meant countries have become more ________, so a change in the economic condition of one country will ________ another.
Interdependent, affect.
