2.1.4 Balance of Payments Flashcards
define the balance of payments
a record of a country’s transactions with the rest of the world - a record of all the money coming into and going out of a country, including payments for goods, services and financial transactions
what are the three sections of the balance of payments
current account, financial account and capital account
why is the current account the main focus for most governments
it gives them an indication of the competitiveness of their economy in the global market place
what must the balance of payments ultimately equal
0
define imports
goods and services bought from foreign countries - negative on the BoP because they are an outflow of money
subtracted from real GDP
define exports
goods and services sold to foreign countries - positive on the balance of payments because they are an inflow of money
added to real GDP
define the current account
records payments for trade in goods and services plus net flows of primary and secondary income
does the UK run a deficit or surplus on the trade in goods
large deficit
why has the UK traditionally run a large deficit on the trade in goods
increased demand for consumer goods - many of which have to be imported (ie food, gas)
decline in the UK manufacturing sector due to low wage economies such as China
what are the four balances on the current account
net balance of trade in goods
net balance of trade in services
net primary income
net secondary income
what goods is the UK a major exporter of
pharmaceuticals/cars
does the UK run a deficit or surplus on the trade in services and why
surplus due to UK being a major exporter in financial and business services
which service is the UK a major importer of
foreign holidays
why has the UK run a surplus on trade in services
UK economy has shifted away from primary and secondary sectors towards tertiary sector employment, thus specialising in the provision of services
specialisation has meant UK is more competitive in the provision of the services and can offer better services at lower cost
London has developed as one of the world’s prime financial centres
define a trade surplus
when the sum of exports of goods and services is greater than imports
define a trade deficit
when the sum of exports of goods and services is less than imports
define primary/investment income
investment income is generated by UK owned overseas assets - the reward for investments in other countries
the profits and dividends that are received are sent back to the UK
is primary income usually positive or negative in the UK
positive
define secondary income/transfer payments
transfers are payments made (or received) , usually by the government, to or from other countries
is secondary income usually positive or negative in the UK
given its status in the European and global economy, the UK typically runs a deficit
give and explain 3 examples of money flows which appear as secondary income
remittances - money sent home by foreign workers
foreign aid - grants, loans, and other forms of assistance provided by one country to another for developmental, humanitarian or other purposes
payments made to international institutions - e.g when UK was in the EU it was a net contributor to the EU budget
briefly explain the role of the capital and financial account
offset deficits on the current account
define a current account surplus
when the sum of exports of goods, services, investment income and transfers is greater than imports
define current account deficit
when the sum of exports of goods, services, investment income and transfers is less than imports
what is the capital account
puts together the current account and financial account in balance by recording changes in net assets, as well as errors and omissions
what is the financial account
records money flows for investment purposes
