Current Account And Balance Of Payments Flashcards
Define balance of payments?
Record of payments between one country and the rest of the world.
Look
Cross check with big book
Define current account?
An element of the balance of payments that records trade in goods and services, investment income and transfers.
What goods and services do the UK import and export?
Import - food, foreign holidays
Export - cars, pharmaceuticals, banking and insurance services
2 problems with running a deficit?
Lots of dependence on other countries
Could be a sign of economy becoming less competitive
Define trade in goods?
A measurement of the movement of tangible products across international borders.
Define investment income?
A measure of interest, profit and dividends that are rewards for capital investments in another country.
Define transfers?
The movement of fuss for which there is no corresponding trade (eg. Taxes paid to EU or immigrants sending money to home country for their family).
What can cause current account imbalance?
Country spending too much
Not producing enough goods that are in demand
Strength of currency
If the pound is strong compared to the dollar, what is likely to happen?
Less UK exports due to them seeming more expensive, more USA imports due to them seeming cheaper to UK.
What happens to the current account of the balance of payments when the interest rate rises?
When the interest rate rises, the exchange rate usually rises too, so exports will become less competitive and imports will become more competitive.
