Balance of Payment Flashcards
current account
what does current account do?
records payment for trade in goods and services and net flows of primary and secondary incom
the current account is the sum of…
- net balance of trade in goods
- net balance of trade in services
- net primary incom
- net seconday income
what does…
primary income measure
the monetary flows generated from the owning of criss- border finiancial assets called inverstment income
what does..
primary income represent
the yeild( returens) from uk investments abroad and that of forign owned investment in the uk
what does…
primary income include
(cross-border workers)
includes foriegn pay for cross border workers such as immigrants
is the uk in budget deficit or budget surplus for the net primary income?
deficit
there is more money flowing out of the uk from foriegn investment in the uk than money flowing in from our overseas assets
what is…
secondary income
current transfers between residents and non residents
what is examples of secondary income
- foriegn aid
- contribution to international organisations such as EU & UN
current account deficit
meaning
occurs when a country’s imports of goods, services, income, and transfers exceed its exports in those categories.
It implies that the country is spending more than it is earning from the rest of the world.a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.
current account surplus
meaning
A Current Account Surplus occurs when a country’s exports of goods, services, income, and transfers exceed its imports. It implies that the country is earning more than it is spending internationally.
Relationship wiv Current Account Imbalances and Macroeconomic Objectives
Impact on Exchange Rates
A persistent current account deficit may lead to a depreciation of the country’s currency, making exports more competitive and imports more expensive. This can help correct the deficit.
Relationship wiv Current Account Imbalances and Macroeconomic Objectives
Impact on Economic Growth
A surplus can lead to higher savings and investment, potentially boosting economic growth. However, a persistent deficit may lead to unsustainable borrowing.
Relationship wiv Current Account Imbalances and Macroeconomic Objectives
Impact on Employment
A trade surplus may support job creation in export-oriented industries, while a deficit can lead to job losses in import-competing sectors.
Relationship wiv Current Account Imbalances and Macroeconomic Objectives
Impact on Inflation:
A depreciating currency (due to a deficit) can lead to imported inflation, affecting the domestic price level.
what is
The balance of payments (BoP)
a record of all economic transactions between a country and the rest of the world. It is divided into two main components: the current account and the capital and financial account.
Balance of Trade in Goods
easures the difference between the value of a country’s exports and imports of tangible goods (e.g., machinery, cars, and clothing). A trade surplus occurs when exports exceed imports, and a trade deficit occurs when imports exceed exports
Balance of Trade in Services
it accounts for the value of services traded internationally, such as tourism, financial services, and consulting. A surplus occurs when a country exports more services than it imports. Example: The United States often has a surplus in services trade due to its leadership in technology and financial services.
Income Balance
This includes earnings from abroad (e.g., dividends, interest, and wages) and payments made to foreign investors. A surplus indicates that a country earns more from its foreign investments than it pays to foreign investors.
Current Transfers
This category includes foreign aid, remittances sent by migrant workers, and other unilateral transfers. It can be positive (inflows) or negative (outflows).
interconnectedness of Economies through International Trade:
what does international trade foster
International trade fosters economic interdependence among countries. One country’s economic policies and developments can have ripple effects globally.
Example: The 2008 financial crisis in the United States had global repercussions, as it led to reduced demand for imports from other countries, affecting their economic growth.
Interconnectedness of Economies through International Trade:
Supply chain integration
Many products involve components from multiple countries. Disruptions in one country can disrupt global supply chains.
Example: The COVID-19 pandemic disrupted supply chains worldwide, affecting industries from electronics to pharmaceuticals.
Interconnectedness of Economies through International Trade:
Benefits of trade
International trade allows countries to specialize in producing what they are most efficient at, leading to efficiency gains and a higher standard of living.
Example: Switzerland specializes in the production of high-quality watches, benefiting from a strong reputation in the global market.
