2.1.4 The Balance of Payments Flashcards
What is the Balance of Payments?
A set of accounts showing transactions between one country and the rest of the world
What are the 3 components of the Balance of Payment?
- the current account
- the capital account
- the financial account
What is the financial account?
An account identifying transactions in financial assets between one country and the rest of the world
What is the capital account?
An account identifying transactions in physical capital between one country and the rest of the world
What is the current account?
An account identifying transactions in goods and services between one country and the rest of the world
What 3 items appear within the current account?
- goods and services
- primary income
- transfer
What is primary income?
Income that is made up of; employment abroad, profits, dividends and interest receipts
What are transfers?
Transactions and grants with international organisations
What is a current account surplus?
When exports (income) is greater than imports (outgoings)
What is a current account deficit?
When imports (outgoings) are greater than exports (income)
As of 2017, what was the current account deficit in the UK?
£-68,365 million
What are the 4 reasons for a current account deficit?
- poor price competitiveness
- strong exchange rate
- recession in trading partner
- volatile global prices
What are the 4 problems for a current account deficit?
- loss of demand
- loss of jobs due to structural unemployment
- currency weakness
- high inflation
What are the 3 problems with a surplus?
- can cause demand-pull inflation
- low domestic consumption, lower standards of living
- can lead to violate global prices
Which macroeconomic policy solves a deficit?
The introduction of tarrifs
