2.1.4 - Balance of payments Flashcards
1
Q
What is the balance of payments
A
Balance of payments records all financial transactions made between consumers, businesses and the government in one country with other nations
2
Q
What are the three main accounts on the BOP
A
- Current account
- Capital account
- Financial account
3
Q
What is the current account
A
Measures the difference between money and credit going in and out of an economy
4
Q
Trade balance in goods
A
- Manufactured goods
- Capital technology/machinery
5
Q
Trade balance in services
A
- Banking
- Insurance
- Tourism
6
Q
Examples of net primary income from overseas assets
A
Flow of profits, interest and dividends from and to investments in other countries
7
Q
Examples of net secondary income
A
- Overseas aid/debt relief
- UK payments to the EU and other international institutions
- Net remittance flows from migrant workers
8
Q
Current account deficit
A
- when a country is running an external deficit
- current account deficit nations are debtor countries
9
Q
Current account surplus
A
- external surplus
- net inflow of income into the economy
- current account surplus nations are creditor nations
10
Q
Effects of a current account deficit
A
- loss of aggregate demand, causes slower rate of real GDP growth thus reducing living standards
- loss of jobs in home-based industries, contributed to regional decline and structural unemployment problems
- currency weakness and high inflation
11
Q
Causes of a current account deficit
A
- Poor price and non-price competitiveness
- Strong exchange rate affecting exports and imports
- Recession in one or more major trade partner countries
- Volatile global prices
- Booming domestic economy
