Balance of Payments and Trade

Question 1

Balance of Payments

Answer 1

A record of all economic transactions that occur
- An idea can be formed as to the state of the economy

• Measured over a period of 1 year

Question 2

Current Account

Answer 2

Contains several key accounts:
goods / merchandise account
services account
income account

Question 3

Goods in the Current Account

Answer 3

Records all transactions involving physical goods
Exports are credits
Imports are debits

• Net balance of Merch. trade balance = total value of export - imports into a country

Question 4

Services in the Current Account

Answer 4

Recalls all transactions including services, such as tourism, banking and legal consultations

• Services BY residents TO foreigners = credit
• Services BY foreigners TO residents = debit
• T.V. of Services by residents - Services by foreigners

Question 5

Trade Balance In Current Acc.

Answer 5

Exports - Imports

Question 6

Income in Current Account

Answer 6

Records all income earnt such as wages, salaries, interests and payments

• earned by residents from foreigners = credit.
• paid to foreigners by residents = debit

credit - debits = Net income

Question 7

Current Account Balance

Answer 7

Total value of a countrys balance on goods and services, and net income

Neg. Current Account Balance = Current acc deficit
- More leakages than injections

Pos. Current Account Balance = Current acc surplus
- More injections than leakages

Question 8

Capital and Financial Account

Answer 8

Record of all the physical capital and financial transactions such as shares and bonds.

• Receive money from foreigners = credit
• Residents pay money to foreigners = debit

Records all capital transactions, and any transactions of non produced, non financial assets

records all transactions associated with changes of ownership of a countries foreign financial assets and liabilities.

Question 9

Reasons for Trade

- specialise and influence a country to trade

Answer 9

Endowment of natural resources
- i.e china buying iron and coal from Australia to produce goods

Differences in labour and capital
- Specialising in producing goods and services based on skills in labour and specialised capital equipment.

Differences in technology

Question 10

Benefits from trade

Question 11

Composition of Trade

Answer 11

exports; resources, services, manufactures, rurals, other goods

imports: intermediate, consumption, capital, services, other goods

Question 12

Components of Capital and Financial Account

Answer 12

Capital Transfers credits
capital transfers debits

Disposal of Non-produced and non financial assets
acquisition of non produced and non financial assets

Foreign investment into australia
Australia investment abroad