Lesson 11 - Balance Of Payments Flashcards
What is the balance of payments?
Record of all economic transactions between the UK and the rest of the world
Money coming in is known as:
A credit
Money going out is known as?
Debit
Money going out is known as?
Debit
What are the 3 main accounts of the BoP?
- financial account
- current account
- capital account
What does the current account look at?
- trade in goods and services
- imports and exports
- net income flows (investment profits)
What does the financial account look at?
Flows of investment in and out of the UK
A current account deficit is when:
Imports > exports
A current account surplus is when:
Exports > imports
What does the impact of changes in demand for goods/services depend on?
The elasticity of demand for that good or service
Name 3 causes of a current account deficit
- lack of productivity
- recession abroad
- strong pound/currency
What are the consequences and solutions for a lack of productivity on the current account deficit?
Consequences
- less growth (demand leaks abroad)
- jobs leak abroad
- increase in unemployment
Solutions
- supply side policies to boost productivity
- lower corporation tax to encourage investment
- train workers
What are the consequences and solutions of a strong pound on the current account?
Consequences
- increase in demand for imports means jobs leak abroad
- leads to a rise in unemployment
- can lead to imported inflation
Solutions
- weaken the currency (sell currency or lower interest rates)
What are the consequences and solutions of a recession abroad on the current account?
Consequences
- government needs to borrow to inject into the economy and boost actual growth
Solutions
- create demand at home by using supply side policies to encourage investment and training/education
- target other export markets
