Macro 4 Flashcards

1
Q

What is the balance of payments

A

A record of a country’s trade and transactions with the rest of the world

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2
Q

What is the balance of payments made up of

A

Current account, capital account, financial account

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3
Q

What is the current account

A

A record of a country’s trade in goods and services, investment income and transfers with the rest of the world

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4
Q

What is the capital account

A

Transfers of the ownership of fixed assets

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5
Q

What is the financial account

A

Involves investment: portfolio investment and direct investment

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6
Q

What is the difference between direct investment and portfolio investment

A

Direct investment is over 10% of capital invested and portfolio investment is under 10% of capital investment

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7
Q

How is the current account calculated

A
  1. X-M (balance of trade)
  2. Interest, profits and dividends
  3. Foreign aid, gift flows
    1+2+3 = current account balance
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8
Q

What is a current account surplus

A

When exports are greater than imports
x>m

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9
Q

What is a current account deficit

A

When imports are greater than exports
M>X

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10
Q

What are visibles

A

trade in goods

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11
Q

What are invisibles

A

trade in services

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12
Q

Why has UK traditionally run in a large deficit of goods

A
  1. Increase in demand of consumer goods
  2. Decline in secondary sector
  3. Lower production of primary materials such as oil and gas
  4. strong currency makes imports more affordable
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13
Q

Why has UK traditionally run in a large surplus of services

A
  1. Shift in focus to tertiary sector - specialising in services
  2. London is one of the world’s prime financial centres leading to a major source of wealth and income
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14
Q

What is Primary income

A

Results from the factors of production abroad, mainly generated by interest, profits and dividends

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15
Q

What is secondary income

A

A range of mainly government transfers to and from overseas organisations. Includes: foreign aid and gift flows

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16
Q

What does a BOP deficit suggest about an economy

A

It is uncompetitive

17
Q

What are the consequences of a BOP deficit

A
  • Higher import prices, leading to inflation
  • Job losses, as more goods are being imported rather than produced domestically
18
Q

What does a BOP surplus suggest about an economy

A

It is competitive

19
Q

What are the consequences of a BOP surplus

A
  • Low economic growth due to a low domestic demand