Balance of Payments Flashcards
1
Q
Definition of Balance of Payments
A
A record of all financial transactions between one country and other countries
2
Q
What is the Balance of Payments
A
“All financial transactions” = 3 parts
- Current Account
- Capital Account
- Financial Account
3
Q
What is the Current Account
A
3 Parts
- Trade balance: X - M (can be split into trade in goods balance and the trade in services balance)
- Primary income (incomes flowing into the country from non-residents - incomes flowing out of the country to non-residents by residents)
- Secondary income (foreign AID)
4
Q
What is the Capital Account
A
The movement of assets
5
Q
What is the Financial Account
A
The movement of stock and stock shares
6
Q
Why would there be a deficit in the current account
A
- high inflation rate
- exchange rate
- low productivity
- overdependance on imports
- manufacturing processes transferred to low wage countries
- protectionism
7
Q
Why would there be a surplus in the current account
A
- opposite of deficit reasons
- abundance of good that is highly demanded by other countries
8
Q
Why does the UK have a deficit in the current account
A
- high exchange rate
- low productivity
- over dependance on imports (growth = high API)
- manufacturing processes transferred to low wage countries
9
Q
How to reduce deficit?
A
- Supply Side Policy
- Deflationary Fiscal Policy
- Protectionist Policies
- Depreciation in currency
