Chapter 28/29 Flashcards
BoP on the current account/protection of the environment
What is the balance of payments?
A record of all the transactions in international trade, split into two parts: current account and capital and financial records.
What is the name of the part of the balance of payments that shows money flow of savings, investments, and currencies?
Capital and financial account
What does the capital and financial account show?
The money flow of savings, investment and currencies.
What is the difference between capital and financial accounts?
Capital: shows the movement of non-financial assets e.g. death tax, sale of land
Financial: shows the transfer of financial assets e.g. FDI, loans
What is shown in the current account?
Exports, imports (visible/invisible), primary and secondary income
What is primary income?
Shown in the current account, its the money earned from working/investing in other countries e.g. workers wages, business receiving interest from giving loans abroad.
What is secondary income?
This is money that comes into or leaves the country as a gift or help from others, without getting anything in return. e.g. remittances, foreign aid
What is meant by exports and imports?
Exports- Goods/services sold overseas by a nation
Imports- Goods/services bought from overseas by a nation.
What is the current BALANCE?
Difference between total imports and total exports of a nation. Can be deficit or surplus.
What is meant by current deficit and surplus?
Surplus- Exports>imports(+)
Deficit- Imports>Exports (-)
What is visible/invisible trade?
Visible- Trade in goods
Invisible- Trade in services
What is visible balance?
Difference between visible exports and visible imports
What is meant by an exchange rate?
Price of one currency in terms of another.
What affect does the exchange rate have on the current balance?
If the value of your currency rises, exports become expensive and imports become cheaper. (Negative impact on current account)
What affect does the current balance have on exchange rates?
If a country is in surplus, so demand for exports is high, the value of the currency will rise because of the increased demand. So the exchange rate gets stronger.
State the reasons for current account surpluses and deficits.
Quality of domestic goods.
Quality of foreign goods.
Price of domestic goods.
Price of foreign goods.
How does the quality of domestic and foreign goods affect the current balance?
-If the quality of domestic goods is good, demand will rise, causing a surplus.
-If the quality of foreign goods is good, demand for imports will rise, causing a deficit.
How does the price of domestic and foreign goods affect the current balance?
If domestic goods are cheaper, the demand for them rises, causing exports to rise (surplus).
If foreign goods are cheaper, the demand for imports by the nation will rise, causing a deficit.
What happens when exchange rate falls?
The value of the currency falls, meaning that its cheaper for overseas buyer to buy (bc they need less of their currency). This causes demand for exports to rise, which has a positive impact on the current account.
What impacts does a current account deficit have?
Leakages from the economy, Inflation, Low demand for exports, funding the deficit
Why is a leakage from the economy bad?
It means an overreliance on imports, this means money is flowing out of the economy into another. Output and employment are under threat.
How is inflation caused by a current account deficit?
If imports greater than exports, it means demand for foreign currency is rising and domestic currency weakens. This makes imports more expensive, so overall prices rise= inflation.
How is low demand for exports bad for the current account?
It means imports>exports and so there is a deficit. The country may face unemployment and reduced economic growth.
Why does the deficit have to be funded?
Foreign currency is needed to pay for imports, eventually foreign currency reserves will end. The nation then has to borrow with high interest rates.
Which business activities damage the environment?
Mining, power generation, chemical processing, agriculture, construction.
Describe how mining destroys the environment.
Materials are extracted from underground, rocks may be crushed, releasing harmful chemicals (tailings), destroying wildlife and contaminate water.
How does power generation destroy the environment?
Generating electricity may need burning fossil fuels, causing CO2 emissions, contributing to global warming+ acid rain.
How does chemical processing destroy the environment?
Chemicals are used to protect crops, cure disease but cause cancer.
How can agriculture damage the environment?
Farmers use pesticides (kills small bugs) and fertilizers. If rainfall occurs, it can cause cancer.
How does construction cause environmental damage?
Produces the most waste material, ending up in landfill. Demolition causes air pollution= cancer.
What are the different types of pollution that businesses cause?
Visual, water, air, noise
How is visual pollution caused by businesses?
Smoke from power stations, smog, electricity pylons cause the area to be unattractive.
How is air pollution caused by businesses?
Emissions from factories, agriculture.
How is noise pollution caused by businesses?
Causes disturbances in everyday life, damaging eardrums.
How is water pollution caused by businesses?
Waste from factories is discharged and water is contaminated, there is then less drinking water and marine life.
How are taxes, subsides and regulation used by govs to protect the environment?
Taxes: Businesses want to avoid high taxes, invest into advanced tech.
Subsidies: The gov offers grants for businesses promoting against pollution
Regulation: Blocking damaging projects, monitoring pollution.
How do govs intervene to protect the environment?
Taxation, subsidies, regulation, fines, pollution permits, park provision
How are fines, pollution permits and park provision used by govs to protect the environment?
Fines: Reduce profits so firms may invest in technology. Fines generally got towards the victims.
Pollution permits: Permits given to businesses so only allowed to discharge certain amount (tradable). Incentive to find solutions.
park provision: parks created where business development is illegal, so wildlife and greenery is protected.
