Balance of Payments

Question 1

Balance of Payments

Answer 1

Total record of all financial transactions made from the current and capital/financial account

Question 2

4 sections of current account

Answer 2

Trade in goods
Trade in services
Net flow of investment income
Transfers of money

Question 3

4 sections of capital/financial account

Answer 3

FDI
Portfolio
Reserve account changes
Other investments

Question 4

4 ways to reduce deficit

Answer 4

Devaluation
Import reduction policy
Improve international competitiveness
Protectionism

Question 5

3 reasons why current account deficit matters

Answer 5

Sign of weak international competitiveness
Loss of investor confidence (capital flight)
Reliance on consumer spending (imbalanced economy)

Question 6

3 reasons why CA deficit irrelevant

Answer 6

Can represent surplus on financial account and flows easier to attract
Large deficits can cause devaluation
Can indicate rapid growth

Question 7

Capital flows

Answer 7

movement of money for the purpose of trade investment or business production

Question 8

3 main types of capital flow

Answer 8

Asset-class movements
Venture capital
Mutual fund flows

Question 9

3 advantages of capital flows

Answer 9

Higher AD and PPF from I
Technological improvements transfers
Lower prices for consumers

Question 10

3 disadvantages of capital flows

Answer 10

UK vulnerable to capital flight
Can destabilize ER
Dependent on performance of other economies

Question 11

(2) Importance of City of London

Answer 11

Contributes 3.7% of NI

£10bn in taxes to exchequer

Question 12

3 supply-side causes of persistent deficit

Answer 12

Insufficient capacity of GB producers from low investment + deindustrialisation
Inadequate non-price competitiveness
Changing comparative advantage