Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Macroeconomics Y12 > Balance Of Payments > Flashcards

Balance Of Payments Flashcards

1
Q

Define balance of payments

A

A record of the country’s transactions with the rest of the world- consists of the financial and current account
X-M=0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what is it called if the value of imports is greater

A

A BOP current account deficit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what is it called if the value of exports is greater

A

A BOP current account surplus

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what is the current account

A

Measures transfers in assets and liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

how to work out current account

A

balance of trade in goods + balance of trade in services + net income/primary flows + net current transfers/secondary income flows

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what is primary income

A

wages
investment incomes
income received on FDI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what is secondary income/current transfers

A

a transaction representing ‘something for nothing’

remittances

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

factors affecting BOP

A

economic growth/consumer spending
exchange rate
decline in international competitiveness
overvalued exchange rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what does the capital/financial account do

A

measures transfers in assets and liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

examples of capital/financial account

A 
direct investment (building factories)
currencies held by central bank
other investment (housing)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

if a country has a current account deficit…

A

it will have an equivalent capital account surplus

this is necessary to finance a current account deficit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Overall balance of payments =

A

current account + financial account + capital account = 0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what is a BOP imbalance

A

when trade between countries is too one sided over a long period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

how can natural short run imbalances be solved

A

by exchange rate movements

WPIDEC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what can a long term BOP current account deficit cause

A

structural unemployment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what can a long term BOP current account surplus cause

A

lower standard of living- if wages are kept low, value of currency kept low, so exports cheap, but imports expensive

17
Q

Why is a BOP current account deficit considered harmful to the economy

A

Lowers AD
Must run a surplus on financial/capital account- foreigners have a claim on your assets
May seem uncompetitive, lower growth of exports
Loss of confidence- devaluation, lower living standards

18
Q

Main causes of structural trade surpluses (opposite for deficits)

A 
Export orientated growth 
Foreign Direct Investment 
Undervalued exchange rate 
High domestic savings rate 
Closed economy 
Strong investment income from overseas 
(U CHEFS)
19
Q

Negative consequences of a current account surplus

A

Weak domestic demand- lower consumer spending and lower spending on imports
Domestic unemployment suffers

20
Q

Why is the current account cyclical

A

Boom: current account deficit rises, consumer spending rises, increasing imports, unemployment falls and inflation rises.
Recession: consumer spending falls decreasing imports, lower inflation, improvement of current account, higher unemployment

21
Q

Ways to influence BOP current account

A 
Tariffs 
Quotas 
Exchange rate adjustment (short run) 
Deflationary demand management (short run) 
Import restrictions (short run) 
Supply side policies (long run)
22
Q

What is an exchange rate adjustment

A

Reduces exchange rate, if currency price is too high, by selling currency or reducing interest rates
Increases competitiveness
Import prices rise export prices fall

23
Q

What does exchange rate adjustment depend on

A

Demand for exports/imports must be elastic
Retaliation
Increases AD, but inflationary pressure may result

24
Q

What is deflationary demand management

A

Discourages expenditure on imports by adopting deflationary fiscal and monetary policy
Reduces consumer spending power
Fall in AD and increases unemployment

25
Q

What does deflationary demand management depend on

A

APC for imports high

Demand for imports income elastic

26
Q

What are import restrictions

A

Reduce expenditure on imports by imposing restrictions like tariffs and quotas
Reduces quantity of imports
Causes inflationary pressure

27
Q

What do import restrictions depend on

A

Retaliation by reducing exports

Legal or illegal?

28
Q

Why are supply side policies used to influence current account

A

If the deficit is caused by lack of quality competitiveness you could implement supply side policies eg.
Subsidies to infant industries
Funds for R and D

29
Q

What do supply side policies depend on

A

Time lag

Very expensive large opportunity cost

30
Q

What are quotas

A

Limit on the supply of a good or service

31
Q

What are tariffs

A

Import duties-taxes on imported products

Macroeconomics Y12 (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions