Balance Of Payments

Question 1

The Balance of payments

Answer 1

Is the record of all money flows or transactions between the residents of a country and the rest of the world in a given period of time.

Question 2

The transactions can be broken down into three main components:

Answer 2

• The Current account
• The Capital account
• The Financial account

Question 3

The Current account

Answer 3

Measures all the currency flows into and out of a country in a particular time period in payment for exports and imports of goods and services, together with primary and secondary income flows.

Question 4

The capital account

Answer 4

Comprises various transfers of income that were part of the current account. It is very small and usually insignificant part of the balance of payments account

Question 5

The financial account

Answer 5

Records capital flows into and out of the economy

Question 6

The main sections of the current account:

Answer 6

• The balance of trade in goods
• The balance of trade in services
• Primary income
• Secondary income

Question 7

The balance of trade in goods

Answer 7

Measures the payments for the exports and imports of goods. It shows the difference between the total value of exports and the total value of imports (visible balance)

Question 8

The balance of trade in services

Answer 8

Measures the difference between the payments for the exports and imports of services (invisible balance)

Question 9

Primary income

Answer 9

This section measures income flowing into the economy in the current year generated by UK owned capital assets located overseas. And income flowing out of the economy in the current year generated by overseas owned capital assets located in the UK .

• Return on previous investments (profit)

Question 10

Secondary income

Answer 10

This section measures current transfers flowing into or out of the UK economy in a particular year

Question 11

Current account deficit

Answer 11

This occurs when currency outflows in the current account exceed the currency inflows

Question 12

Current account surplus

Answer 12

This occurs when currency inflows in the current account exceed the currency outflows

Question 13

The financial account

Answer 13

Question 14

How exports affect the economy

Answer 14

Question 15

Three factors that influence a country’s current account balance

Answer 15

Question 16

Economic problems from persistent trade deficits

Answer 16

Question 17

Possible problems from running trade surpluses

Answer 17

Question 18

The current account balance

Answer 18

The current account balance = balance of trade in goods and services + primary income balance + secondary income balance

Question 19

Calculate the current account example

Answer 19