Balance Of Payments Flashcards
Terms of trade
Relative price of exports in terms of imports and is defined as the ratio of export prices to import prices
Balance of trade
The difference in value over a period of time between a countries imports and exports of goods and services
What’s in the current account
Net primary and secondary income
Net primary income
Incomes from profit interest and dividends generated from foreign investment
Eg payments from people living or working overseas
Net secondary income
Transfer of ownership of fixed assets
Financial account
In/out of financial capital across boundaries
Transactions resulting in change of ownership of fixed assists and liabilities between uk and non uk residents
Net balance of foreign direct investment flows
Net balance of portfolio flows eg bonds
Balance of banking flows eg hot money
Determinants of elasticity of demand
Time period
Number and closeness of substitutes
Proportion of income
Luxury or necessity
Habit
Determinants of elasticity of supply
Availability of FOP
Time
Spare capacity
Uk current account
-5.3%
Reasons for current account surpluses and deficit
Uneven distribution of natural resources
Differential competitiveness
Exchange rates
Inflation
Investment and long term econ growth
Domestic+ Gov spending
Marshall learner condition
Where the devaluation of a countries currency will lead to improvement in its balance of trade with the rest of the world only if it’s price elasticities of its exports and imports is greater than one
What is the uks problems with exports
Elasticity of demand for imports
Decline of manufacturing
Growth of emerging markets
Lack of competitiveness
Magnitude of current account deficit
Partial auto corrections
Investment and supply side
Capital flows
Financial account
The J curve
Shows time lag between a falling currency and improved trade balance
Deficit grows initially because it’s done by contracts
Trade liberalisation
the removal or reduction of restrictions or barriers on the free exchange of goods between nations.
