2.1.4 Balance of payments Flashcards
Balance of payment
A record of all financial dealings over a period of time
between economic agents of one country and all other countries .
Current account
Records payments for the purchase and sale of goods and services
Current account: Trade in goods
Trade in goods - measures the difference between the value of exports and imports of tangible goods (i.e. machinery, or clothing). When the value of - E>I = trade surplus (or) I>E - trade deficit.
Current account: Trade in services
-Trade in services - accounts for the value of services traded internationally (i.e. financial, or technology). When a country exports more services than imports = services surplus.
Current account: Income balance
-Income balance - incomes e.g. wages, interest, and dividends being repatriated into the country. Surplus indicates that a country earns more from its foreign investments than it does to foreign investors.
Current account: Current transfers
Trade in goods - measures the difference between the value of exports and imports of tangible goods (i.e. machinery, or clothing). When the value of - E>I = trade surplus (or) I>E - trade deficit.
Current account deficit
The value of imports exceeds exports (-) Implies a country is spending more than it is earning from the rest of the world.
Current account surplus
The value of exports exceeds imports (+) Implies a country is earning more than it is spending internationally.
Relationship with macroeconomic objectives
High economic growth: Current account deficit - higher demand in the economy for imports (or) during high unemployment, current account deficit improves
Low and stable inflation: a depreciating currency (due to a deficit) can lead to imported inflation, affecting the domestic price level.
Interconnectedness through international trade
International trade fosters interdependence among countries. So, a change in the economic condition of one country will affect another.
