Balance of Payments on the Current Account Flashcards
1
Q
What is a current account surplus?
A
When the value of exports exceeds the value of imports.
2
Q
What are the demand side cause if a current account surplus?
A
- High incomes abroad
- Low incomes at home
- Weak exchanges rate (WIDEC)
3
Q
What are the supply side cause of current account surplus?
A
- Low relative inflation
- Low labour costs
- Strong investment
- Gains in comparative advantage
- New resource discovery
4
Q
What are the consequences of a current account surplus?
A
- Appreciation of exchange rate
- Financial account deficit
- Can harm international relations
Increased AD, Growth and decreased unemployment causing demand pull inflation
5
Q
What is a current account deficit?
A
When the value of exports is lees than the value of imports?
6
Q
What are the demand side cause if a current account deficit?
A
- Strong domestic growth
- Recession overseas
- Strong exchange rate ( SPICED)
7
Q
What are the supply side cause if a current account deficit?
A
- Low investment
- Low productivity
- High inflation
- Depletion of resources
8
Q
What are the consequences of a current account deficit?
A
- Decreased AD
- AD shifts inwards
- Debt burdens
- Decreased exchange rate
9
Q
What is the current account of balance of payments?
A
Measures flow in/out of an economy based on balance of trade in the 4 components making the current account.
10
Q
What are the 4 factors making the current account balance?
A
- Net trade in goods
- Net trade in services
- Net investment
- Transfers
