Balance of Payments (Up Learn)

Question 1

Balance of Payments

Answer 1

Record of payments between 1 country and the rest of the world. Record of all money flowing in and out of the country.

Question 2

Current Account split into what?

Answer 2

Trade in goods, Trade in services, Investment Income, Current transfers

Question 3

Trade in Goods and Services

Answer 3

When imports: current account decreases as money leaves the country and it is a withdrawal from circular flow of income.
When exports: current account increases as money enters the country and it is an injection into the circular flow of income.

Question 4

Investment Income

Answer 4

Includes any rent or profit earned on investment made abroad

Question 5

Current Transfers

Answer 5

When money transferred without getting anything in exchange. Imports and exports are when you exchange stuff. Example of current transfer is remittance: when wages are sent back home.

Question 6

Current Account equals?

Answer 6

Inflows + outflows.

Question 7

Current Account Deficit

Answer 7

More money leaving than entering.

Question 8

Factors affecting Current Account

Answer 8

Exchange rates, Relative Inflation, Quality, Costs, Income

Question 9

Exchange Rates

Answer 9

When £ appreciates and exchange rates are high, imports get cheaper and exports more expensive. We would buy more imports so more money leaves the UK and Current Account is at deficit.

Question 10

Relative Inflation

Answer 10

If country’s inflation rate is lower relative to other countries, exports are cheaper so foreign consumers would but more of its exports. More exports means Current Account would increase.

Question 11

Quality

Answer 11

Higher quality for one country, means more exports from that country, means more money comes in, means Current Account increases.

Question 12

Costs

Answer 12

Higher production costs means higher exports prices means lower demand from foreigners which would decrease Current Account

Question 13

Income

Answer 13

Increased National Income means import more normal goods means more money leaking out means Current Account would decrease.

Question 14

Why has the world economy become interconnected?

Answer 14

1) Increasing migration between countries
2) More technology shared on a faster basis
3) More companies own assets in other countries like businesses
4) Proportion of output of individual economy which is traded internationally is growing.

Question 15

What does international trade mean?

Answer 15

Countries depend on each other so a change in one country economically will affect another.