2.1.4 Balance of Payments

Question 1

What is the Balance of Payments?

Answer 1

A document which records all the flows of money into and out of the UK economy.

Question 2

What 3 ways is the Balance of payments subdivided into?

Answer 2

The current account

The capital account - buying fixed assets like land.

The financial account - loans, FDI etc

Question 3

What does the current account consist of?

Answer 3

• Balance of trade in goods (exports - imports)
• Balance of trade in services (exports - imports)
• Net investment income
• Payments to international orgs (I.E UN,IMF etc)

Essentially shows the net trade of goods and services (X-M)

Question 4

What does the UK current account usually look like?

Answer 4

DEFICIT in its trade of goods (exports are less than imports)

SURPLUS in its trade of services (exports services MORE than imports)