Macroeconomics- Balance Of Payments

Question 1

What is the balance of payments?

Answer 1

The official records published by the government of all the currency flows in and out of the country
Made up of the current account and capital flows

Question 2

What is a current account deficit and surplus?

Answer 2

Deficit- value of imports > value of exports

Surplus- value of imports < value of exports

Question 3

What are the 4 factors of the current account?

Answer 3

Trade in goods
Trade in services
Primary income
Secondary income

Question 4

What is primary income?

Answer 4

The profit and interest income that is generated from assets that a country’s residents own abroad.

E.g if a UK resident puts money in an offshore bank then there is a capital outflow but the interest received is a primary income inflow

Question 5

What is secondary income?

Answer 5

The payments flowing between countries in the form of foreign aid, private transfers (e.g money payed to an international school in the UK), grants and gifts

Question 6

What is the philips curve?

Answer 6

A curve that shows an inverse relationship between inflation and unemployment
E.g. as unemployment falls from 3% to 2% the rate of inflation will increase from 3% to 5% causing an opportunity cost