2.1.4 Balence Of Payments ✅ Flashcards
What is the balance of payments? What does it focus on?
Record of all financial dealings between economic agents of one country and other countries. Focusing on the flows of money.
What flow of forgiven currency is positive what is negative?
Positive = exports
Negative = imports
What are the two components of balance of payments?
- current account
- capital and financial account
What are the four components in the current account?
- invisibles balance (trade of services)
- visible balance (trade of goods)
- income
- transfers
Name visibles (goods)?
- raw materials
- manufactured goods
What is the trade of goods?
Difference between exports and imports of goods.
What is the invisible trade (services)?
International transaction of intangible goods (banking, education services).
Give examples of invisible imports?
- hotels in foreign countries.
- car rentals.
What must always be balance?
BOP inflows=outflows
What is a current deficit?
When imports(costs) are more than exports(revenue).
What is a current surplus?
When exports are higher than imports.
What are causes of current account deficit?
- high domestic inflation.
- foreign recession (less income for abroad workers).
- depletion of resources (total revenue for export will decrease).
- high cost of production (low investment).
How has international trade connected economies?
- Interdependence therfore one econ policy can have a ripple globally eg 2008.
- Supply chain integration = parts are from all round world.
- Benefits of trade = laws specialisation causing efficiency gains. Eg Switzerland produces high quality watches thus has strong reputation.
What is the relationship w current acc imbalences and other macro objectives?
- Current deficit = depreciate exchange (bc less d for currency) this will help correct deficit.
- Surplus can lead to higher investment + savings.
- Surplus creates jobs in export-orientated industries.
- depreciation (due to deficit) can lead to to imports inflation.
