Balance of Payments Boppidy Bop Flashcards
What is Balance of Payments?
A record of all financial dealings over a period of time between economic agents of one country and all other countries
What is the Current Account?
Records payments for purchase and sale of goods and services
What is the Capital and Financial account?
Records flows of money associated with savings/investments
What are components of the Current account?
- Trade in Goods
- Trade in Services
- Net Primary Income
- Net Secondary Income
What is Trade in Goods?
- Trade in ‘visible’, e.g raw materials and finished goods
- Dif between visible exports and imports is balance of trade
What is Trade in Services?
- ‘Invisibles’, e.g tourism and holidays
- Balance of trade in goods + services = balance of trade + balance of invisibles
What is Primary Income?
- Result of loans of the factors of production abroad,
- Profits, interest and dividends
What is Secondary Income?
- Government transfers to overseas organisations
- The European Union
What is the Current Balance?
Balance of Trade + Balance of invisibles + Net Income and Current Transfers
What is a Current Account Surplus?
Exports are greater than imports so the balance is positive
What is a Current Account Deficit?
Imports are greater than exports so the balance is negative
How do Macro economic objectives get affected by the Balance of Payments?
- High economic growth means current account deficit as more demand = more imports
- Govt want more export led growth
What is the Interconnectedness of Economies?
- International trade due to output from individual countries is increasing
- Many people own assets in other countries
- Increasing migration between countries
- More sharing of technology
This interdependence means that change in one country affects everyone else’s imports and exports and their balance of payments
