BALANCE PAYMENTS TOPIC SHEET QUESTIONS Flashcards
What is the balance of payments?
A record of all the financial records of one country and the rest of the world.
Current accounts+ Capital accounts + financial accounts.
What is the structure of the current account?
Trade in goods (exports of goods- imports of goods) Trade in services (export of services- Import of services) Current transfers (exports are credit and imports are debits) Investment income (exports are credit and imports are debit)
Define the net exports.
Exports-imports,
Distinguish between current account deficit and surplus.
Two ways
Current account deficit is when the value imports are greater than value of exports.
Current account surplus is when the value of exports are greater than the value of imports.
Current account is negative in a deficit.
Current account is positive in a surplus.
What might cause a trade deficit or surplus for UK?
Causes of a TRADE DEFICIT?
A BOOM IN THE ECONOMY- as consumer spending will increase will increase imports
LOW PRODUCTIVITY IN AN ECONOMY- there will be less exports due to high production costs per unit.
HIGH EXCHANGE RATE- if the pound is strong it will be less expensive to import and more expensive for other countries to buy UK exports.
A GLOBAL RECESSION- if other countries are in a recession they are less likely to import from UK this will decrease the number of exports of UK.
HIGH MARGINAL PROPENSITY TO IMPORT.
Causes of a TRADE SURPLUS-
LOW EXCHANGE RATE- if the pound gets weaker it will be cheaper for other countries to import from UK so imports of UK would increase.
GLOBAL ECONOMIC GROWTH- if other economies will go grow they will buy more imports from the UK which will cause a trade surplus.
LOW MARGINAL PROPENSITY TO IMPORT.
What are the benefits and drawbacks of a trade surplus and trade deficit.
Trade Surplus- there is an injection into the circular throw of income, which can be inflationary.
Trade deficit- there is a leakage into the circular flow of income.
How can current account surplus and deficits impact other macroeconomic objectives?
Current account surplus can cause inflation.
Current account deficit can cause problems for economic growth and unemployment.
How does the exchange rate impact the current account?
Stronger currency the imports are cheaper which will cause a current account deficit. Because imports are cheaper and exports are more expensive for other countries.
Weaker currencies will cause a current account surplus. Because if the currency is weaker it will be more expensive to import for country itself but cheaper for other countries to buy their goods and services.
Which account would a flat screen tv from Taiwan be?
Trade in goods (import/debit)
Which account would a holiday in France be?
Trade in services (import/debit)
Wages earned in Sweden and sent back to UK
Current transfer (credit/export)
Profits earned by a factory worker in Spain sent back to the UK.
Investment income (credit/export)
Money donated by the UK to the `Nepal government appeal
Current transfer (debit)
Money spent from the UK on eu fees
Current transfer (debit)
The sale of the UK embassy building in Syria
Investment income (credit)
