Balance Of Payments

Question 1

What is BoP

Answer 1

A record of payments between one country and the rest of the world

Question 2

What are the two main section of BoP

Answer 2

Current account and financial account

Question 3

What are the 4 parts which make a current account

Answer 3

Trade in goods
Trade in services
Investment incomes
Current transfers

Question 4

Trade goods include

Answer 4

Imports of goods from abroad such as Ferrari from Italy and exports of goods from overseas such as britain selling fighter jets to america

Question 5

What does the current account measure

Answer 5

The inflows and outflows of money paid and received in exchange for imports and exports

Question 6

Investment income includes

Answer 6

Any rental profit earned by investment Made abroad

Question 7

What are current transfers

Answer 7

When money is transferred abroad without getting any goods or services back as an exchange. Transferring money back home is common example

Question 8

What is the current account deficit

Answer 8

A current account deficit is negative and occurs when total money coming in is less than the total money leaving the economy

Question 9

What is a current account surplus

Answer 9

When there is more money coming in than leaving the economy, which means that the current account will be positive

Question 10

What is current account equilibrium

Answer 10

When total money coming in(inflow) is the same as the total money going out(outflow)

Question 11

Factors affecting current account

Answer 11

Exchange rates
Relative inflation
Costs
Quality
Income

Question 12

What will happen if the pound appreciates

Answer 12

Pound gets stronger, meaning that stronger pounds means imports gets cheaper and exports more expensive. The opposite will happen if there is a depreciation

Question 13

What happens if a countries inflation rate is lower compared to its competitors

Answer 13

Prices increase leading to cheaper exports increasing export revenue as foreign consumers will purchase more, increasing current account.

Question 14

What happens if a countries inflation rate is higher compared to its competitors

Answer 14

Prices increase, foreign consumers will consume less, decreasing exports leading to a decrease in export revenue, decreasing current account

Question 15

What happens if national income increases

Answer 15

Increase imports on normal goods increasing import expenditure leading to money leaking out of the economy decreasing the current account, which is a huge reason to the uk current account deficit

Question 16

What are the 7 macroeconomic objectives

Answer 16

2%+- 1% inflation rate
Economic growth
Reduce unemployment
Current account equilibrium
Balanced budget
Reduce inequality
Environmental sustainability