Lesson 11 - Balance Of Payments Flashcards
(14 cards)
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
