Current Topics

Question 1

Foreign Direct Investment (FDI)

Answer 1

part of the financial account, physical investment in another country

Question 2

Banking Flows

Answer 2

part of the financial account, hot money coming in and going out seeking for the best interest rates e.g

Question 3

Portfolio Investment

Answer 3

part of the financial account, investment into foreign assets

Question 4

Current Account

Answer 4

Trade in Goods, Trade in Services, Net Primary Income, Net Secondary Income

Question 5

Financial Account

Answer 5

FDI, Portfolio Investments and Banking flows

Question 6

Trade Balance

Answer 6

Trade in Goods, Trade in Services

Question 7

Budget Deficit

Answer 7

government spending exceeds its revenue

Question 8

National Debt

Answer 8

accumulated Budget Deficits over time

Question 9

Current Account Deficit

Answer 9

The current account of the balance of payments measures in value the Trade in Goods, Trade in Services, Net Investment Incomes and Net Transfers. A deficit is usually the result from an increasing net trade deficit where the value of imports exceeds the value of exports.

Question 10

A depreciation is caused by

Answer 10

A depreciation can be caused by an increased money supply of an countries own currency in the FX ( S shifts outward) causing a fall in external value

Question 11

What does a trade deficit mean and lead to?

Answer 11

a trade deficit leads to net capital outflow from the circular economy and is caused by imports exceeding exports

Question 12

Free Floating System

Answer 12

currency price of a nation is set by the forex market based on supply and demand relative to other currencies

Question 13

Key causes for Current Account Deficit

Answer 13

poor price and non price competitiveness, Strong exchange rate, recession in countries of trading partners, volatile global prices

Question 14

Consequences of an Current Account Deficit

Answer 14

Loss of aggregate demand, cost-push inflation, supply side weaknesses

Question 15

The exports multiplier effect

Answer 15

A fall in exports will reduce AD and the final impact on GDP, jobs and investment is amplified by multiplier and accelerator effects.

Question 16

Policies to reduce a current account deficit

Answer 16

Supply Side Management and Demand Side Management

Question 17

Demand Management Policies

Answer 17

Expenditure decreasing and expenditure switching policies.

Question 18

Expenditure decreasing policies

Answer 18

a tightening of fiscal or monetary policies will lead to less individual consumer spending power and therefore leads to a fall in demand for imports.

Question 19

Expenditure switching polices

Answer 19

Lower exchange rate reduces the price of exports and makes imports more expensive.

Question 20

Austerity

Answer 20

Government cutting back on spending

Question 21

Marshall Lerner Condition

Answer 21

states that a currency depreciation will only correct a current account deficit if the sum PEDx + PEDm > 1.

Question 22

Supply Side Improvements

Answer 22

Improving Labour Productivity and or competitiveness

Question 23

Protectionist measures

Answer 23

Tariffs and Quotas