Steedsy Theme 4

Question 1

What is the definition of the balance of payments

Answer 1

Shows the record of all outflows and inflows of money

Question 2

What are the UK’s main exporting goods

Answer 2

Cars
Power generators
Pharmaceutical products
Crude oil

Question 3

What does the financial account include

Answer 3

Net balance of FDI inflows
Hot money
Changes to value of gold and foreign currency

Question 4

Structural reasons for surpluses and deficits of the current account

Answer 4

Uneven distribution of natural resources
Differential in competitiveness
Investment and long term economic growth
Domestic and government spending

Question 5

Cyclical reasons for surpluses and deficits of the current account

Answer 5

Exchange rates
Inflation

Question 6

What is the significance of a current account deficit

Answer 6

• Net outflow of AD from circular flow
• Loss of jobs in export sectors and industries affected by rising imports
• Fall in foreign exchange revenues as price of pound decreases due to less supply of money in uk economy as your money is now in another economy due to the import increase
• debt burden - people will stop buying bonds due to uncertainty over whether they will be paid back or not
• reduced quality of life due to lack of economic growth and exchange rate weakness

Question 7

Causes of importing too much (deficit)

Answer 7

Elasticity of demand for imports (high mpm)
Decline of manufacturing
Growth of emerging markets
Lack of competitive pricing

Question 8

Does a balance of payments deficit matter

Answer 8

• Partial auto-correction - higher demand for imports causing inflation leading to more exports
• investment and supply side
• the financial account is positive