CHAPTER 68 BALANCE OF PAYMENT ISSUES

Question 1

Expenditure reducing

Answer 1

In a balance of payments context, government policies to reduce the level of aggregate demand in order to reduce imports and boost exports.

Question 2

Expenditure switching

Answer 2

In a balance of payment context, government policies such as devaluation or protectionism designed to switch production currently being sold domestically to exports.

Question 3

Foreign direct investment (FDI)

Answer 3

Flows of money between countries where one firm buys or sets up another firm in another country. Technically, it is defined as purchasing a controlling interest in a foreign firm, defined as 10 per cent or more of the shares of a firm

Question 4

Portfolio investment.

Answer 4

Flows of money between countries to purchase foreign shares where this is less than 10 per cent of the company, or bonds.