Balance Of Payments

Question 1

What is in the current account

Answer 1

Trade in goods and services,
Income- ipd

Interest- foreign income from foreign banks
Profits
Dividends- profit from shared

Question 2

What is in the capital and financial account

Answer 2

Long term- direct investment

Short term- hot money

Question 3

What are the net errors and omissions

Answer 3

A figure to make sure there is a balance and all transactions are recorded

Question 4

What causes a deficit

Answer 4

Uncompetitive uk goods
Increased income (uk)
Decreased income (overseas)
Appreciation of the pound

Question 5

What’s the effect of a deficit

Answer 5

bad:
Ad down
Growth down
Unemployment up

good:
Inflation down

NET LEAKAGE

Question 6

How do you evaluate a deficit in terms of size

Answer 6

Bigger is worse due to a bigger net leakage

Question 7

How do you evaluate a deficit in terms of duration

Answer 7

Systematic leads to structural problems whereas it’s not as bad if followed by a surplus

Question 8

How do you evaluate a deficit in terms of the state of the capital and financial account

Answer 8

A surplus can offset a current account defecit

Question 9

What are exchange rates affected by

Answer 9

Demand for m and x,
IPD flows,
Transfers,
Capital flows

Question 10

How can you evaluate the effect of a changing exchange rate

Answer 10

How much (spiced),
How long,
Cerberus paribus

Question 11

What are the benefits of international trade

Answer 11

Country- comparative advantage,
Consumer- cheap/ choice,
Business- larger market

Question 12

What’s a problem with international trade

Answer 12

Country- uncompetitive industries close so unemployment does up and investment down

Question 13

What is the budget balance

Answer 13

Government spending and taxes

Question 14

What is the balance of trade

Answer 14

Imports and exports