balance of payments (4.2) Flashcards
what is a balance of payments
the record of all financial transactions between one country and the rest of the world
what is a current account
the record of trade in goods and services, income flows and transfers between one country and the rest of the world
what are the main factors of a current account
- trade in goods
- trade in services
- income flows : earnings on investments abroad
- transfers : transfer of money or goods ( no actual payment)
what is a balance of payments on current account
the total of net trade in goods and services, income floes and transfers between one country and the res of the world
what is a balanced current account
where the sum of exports plus the inflow of income and transfers is equal to the sum of imports plus the outflow of income and transfers
what is a current account deficit
where the sum of exports plus the inflow of income and transfers is less than the sum of imports plus the outflow of income and transfers
what is a current account surplus
where the sum of exports plus the inflow of income and transfers is more than the sum of imports plus the outflow of income and transfers
what is the importance on a current account deficit
- increases the debt of the country
- may reflect a falling total demand
- over time lead to a fall in exchange rate
- reduce inflation
what is the importance of a current account surplus
- may reflect a rising demand
- decreases the countries dept
- may cause rising inflation
- over time lead to a rise in exchange rate
what are the causes of a current account surplus
- strong economy : if product are high quality
- a fall in exchange rate
- a net inflow of investment income
what are the causes of current account deficit
- structural problems in the economy : poor quality, over priced goods
- falling income overseas
- rise in exchange rates
- a net outflow of investment income
