4.1.7 Balence Of Payments ✅ (needs Significance Of Thingy)

Question 1

What is the balence of payments? Key parts?

Answer 1

An account that records all flows of money between resident and the rest of the world.
- Current account.
- Capitol and financial account.

Question 2

What is the current account? Components?

Answer 2

Records the transactions related to a country trade in g/s and incomes.
- Trade in goods.
- Trade in services.
- forign investment income.
- transfers.

Question 3

What is the capital and financial accounts?

Answer 3

Records capital flows in and out a country.

Question 4

Explain the Capitol account?

Answer 4

Record Capitol transfers such as the sale of assets (real estate, patents) w a country and the rest of th world.

Question 5

Explain the financial accounts?

Answer 5

Tracks financial assets such as FDI, investment and reserves.

Question 6

What causes deficits?

Answer 6

• Trade imbalances.
• Income imbalences (give mor FDI than receive).
• low savings rate. (Reliant on forign financing).

Question 7

What causes current account surplus?

Answer 7

• Trade surpluses.
• High savings rate (nation w high savings rate can accumulate surpluses as it invests abroad).
• Foreign investment inflows (attracting FDI and portfolio investment can lead to surpluses).

Question 8

Measures to reduce a country’s imbalance of the current acc?

Answer 8

• Depeciating the currency.
• Trade policy eg blocs can promote exports.
• Strucutral reforms = innovation/investment increases competitiveness.
• forign investment = brings in forign Capitol

Question 9

Why are global trade imbalances significant? (Some are surplus but some are deficits)

Answer 9

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