2.5-Balance of payments Flashcards
What is the Balance of Payments?
The Balance of Payments is a record of all economic transactions between residents of a country and the rest of the world over a specific period.
True or False: The Balance of Payments includes only trade in goods.
False
What are the two main components of the Balance of Payments?
The current account and the capital and financial account.
Fill in the blank: The current account includes trade in goods, trade in services, income, and _____ transfers.
current
What does a surplus in the current account indicate?
It indicates that a country is exporting more than it is importing.
Multiple Choice: What is included in the capital and financial account? A) Trade in goods B) Foreign investments C) Government transfers
B) Foreign investments
What is meant by ‘invisible’ trade?
Invisible trade refers to the trade in services rather than goods.
True or False: A deficit in the Balance of Payments always leads to a decrease in foreign reserves.
False
What is the formula for calculating the Balance of Payments?
Current Account + Capital and Financial Account = Balance of Payments
Fill in the blank: The _____ account records transactions that do not involve the transfer of ownership of goods and services.
current
What is ‘net income’ in the context of the Balance of Payments?
Net income refers to income earned by residents from investments abroad minus income earned by foreign investors in the domestic economy.
Multiple Choice: Which of the following is NOT part of the current account? A) Trade in goods B) Income from investments C) Foreign direct investment
C) Foreign direct investment
What does the capital account primarily record?
The capital account primarily records one-off transactions involving the transfer of ownership of fixed assets.
True or False: An increase in foreign investment can improve a country’s Balance of Payments.
True
What is the significance of a balanced Balance of Payments?
A balanced Balance of Payments indicates that a country’s international transactions are stable and sustainable.
Fill in the blank: A _____ in the Balance of Payments can lead to a depreciation of the national currency.
deficit
What role do exchange rates play in the Balance of Payments?
Exchange rates affect the competitiveness of a country’s exports and imports, influencing the Balance of Payments.
Multiple Choice: Which factor can cause a shift in the Balance of Payments? A) Changes in consumer preferences B) Weather conditions C) All of the above
C) All of the above
What is ‘trade in services’?
Trade in services refers to the exchange of services such as tourism, banking, and insurance between countries.
True or False: A country with a current account deficit must borrow from foreign lenders to finance it.
True
What is the impact of government policies on the Balance of Payments?
Government policies, such as tariffs and subsidies, can influence trade flows and affect the Balance of Payments.
Fill in the blank: The _____ account records all financial transactions that affect a country’s foreign assets and liabilities.
capital
What is a ‘visible’ trade?
Visible trade refers to the trade of tangible goods such as machinery and food items.
Multiple Choice: Which of the following would improve a country’s Balance of Payments? A) Increased imports B) Increased exports C) Decreased investment abroad
B) Increased exports
