Balance Of Payments Flashcards
What is the balance of payments?
a record of all the flows of money between the residents of one country and the rest of the world
What is an import?
an overseas produced good/service purchased by UK citizens
• Loss of jobs in home-based industries (regional & structural
resulting in an outflow of income from the UK
What is an export?
a UK produced good/service sold overseas resulting in an inflow of income into the UK
What is the current account on the balance of payments?
the section of the balance of payments that records international trade in goods, services, primary
income & secondary income
What is the balance of trade in goods and services?
the value of exports of goods &
services minus the value of imports of goods and services.
• If this is positive, there is a trade surplus
• If it is negative there is a trade deficit
Cyclical causes of a current account deficit?
• Overvalued exchange rate
• Boom in domestic demand
• Recession in key export
industries
• Slump in global prices of exports
• Increased demand for imported
technology
• Increase in global
energy/commodity prices (for
net importers)
What are some structural causes of a current account deficit?
• Under-investment
• Relatively low productivity
• Persistently high relative
inflation
• Inadequate R&D, innovation
• Emergence of low-cost
competition (emerging markets)
• Increase in global
energy/commodity prices (for
net exporter)
What is the current account?
The current account records the exports and imports (inflows and
outflows) for these categories:
Trade in goods
Trade in services
Primary income
Secondary income
Current account balance
What is the trade in goods?
oil, energy, raw materials, food, manufactures, semi- manufactures, components, capital goods
What is the trade in services?
finance, insurance, business services, consulting, travel/tourism, telecommunication and information
What is primary income?
net investment income – the inflow of interest
profits and dividends on UK assets held abroad less the outflow of interest, profits and dividends of foreign-owned assets in the UK
What is secondary income?
net current transfers between countries such as foreign aid, gifts, payments to and from EU (due as part of the TCA)
What is the current account balance?
the value of exports less the value of imports for goods, services, primary and secondary income
