8.4 The balance of payments on current account Flashcards
What is the balance of payments?
A record of a country’s trade/transactions with the rest of the world
What are the 3 sections of the balance of payments?
The current account
The financial account
The capital account
What does the current account measure? (4)
Trade in goods
Trade in services
Investment income
Transfers
What does the capital account measure?
Transfers of assets by induviduals
When is there a budget surplus?
Exports > Imports
When is there a budget deficit?
Imports > exports
Trade in goods component of the current account:
- What does this measure?
- Does the UK traditionally run surplus of deficit?
- NET exports
2. Large deficit
Trade in services component of the current account:
- What does this measure?
- Does the UK traditionally run surplus of deficit?
- NET exports of invisible items
2. Large surplus
What is investment income?
Generated by Uk owned oversea’s assets
The profits and dividends that are received are sent back to the UK, and count as a credit item of Investment Income on the current account
What is the transfers compnent of the current account?
Transfers are payments made (or received), usually by the government, to or from other countries.
The main transfers include:
Payments for membership of the European Union
Foreign Aid
Why is there a persistent deficit on the current account? (4)
- As consumer spending increases so does our demand for goods
- UK are less competetive are manufactoring goods
- Our exchange rate is too strong
- Primary and secondary sectors shrinking in comparison to tertiary sector
Why doesn’t the dbt on the current account become too large? (4)
- Control consumer spending
- Investing in the supply side of the economy
- Depreciation of exchange rates
- Improve macroeconomic conditions in the UK
