Balance of Payments

Question 1

What are the three accounts on the BofP

Answer 1

Financial, Current, Capital

Question 2

What are the four sections on the current account

Answer 2

• Trade in goods
• Trade in services
• Primary income
• Secondary income

Question 3

What is the trade in goods

Answer 3

Measures import and export of visible goods

Question 4

what is trade in services

Answer 4

imports and exports of services like tourism or banking

Question 5

what is primary income

Answer 5

flows of incomes in and out the country, salaries, dividends

Question 6

what is secondary income

Answer 6

transfers of money from one person to another like aid

Question 7

consequences of a BoP deficit

Answer 7

• People are wealthier and can have higher standard of living
• depreciates exchange rate so imports cost more leading to inflation.
• sustained deficit can lead to debt
• unemployment increases as less goods are needed to be produced domestically

Question 8

consequences of a BoP surplus

Answer 8

• sustained surplus can lead to stagnation
• inflation through price for raw materials increasing from weaker exchange rate increases cost of production
• increases growth in short run

Question 9

what is economic stagnation

Answer 9

low economic growth

Question 10

what does international trade mean

Answer 10

firms and governments have investments and interests in lots of different countries

Question 11

why can international trade be a problem

Answer 11

Makes countries very dependent on each other, recessions or crisis in one country can have a ripple effe ct on others.