2.1.4 Balance of payments

Question 1

what is the balance of payment made up of?

Answer 1

1. the current account
2. the capital account
3. the official financing account

Question 2

what is a current account surplus

Answer 2

it means there is a net inflow of money into the circular flow o income

Question 3

what is a current account deficit

Answer 3

spending more on imports from foreign countries, than they earn from exports to foreign countries

Question 4

what are the UK’s macroeconomic objectives

Answer 4

1. full employment
2. low, stable inflation
3. sustainable current account on the balance of payments
4. sustainable economic growth

Question 5

the interconnectedness of economies through international trade

Answer 5

in theory, the sum of all countries’ trade balances should be zero, since what one country exports will be imported by another country

if the UK’s main export market, such as the EU, faces an economic downturn then demand for UK goods an services will fall, since consumers in the EU are less able to afford imports

INternational trade has meant countries have become interdependent. Therefore the economic conditions in one country affect another country, since the quantity the export or import will change.