The Balance of Payments

Question 1

definition of BOP

Answer 1

a record/summary of all economic transactions that occur between domestic entities and foreign entities
(entities: households, firms, and government)

Question 2

period of BOP measurement

Answer 2

annually

Question 3

different accounts of the BOP

Answer 3

current account 
income account 
capital account 
financial account
net errors and omissions

Question 4

credit

Answer 4

positive entry

exports of goods and services, income receivable, increase in foreign liabilities and export of currency

Question 5

debit

Answer 5

negative entry

imports of goods and services, income payable, increase in foreign assets, import of currency

Question 6

the current account

Answer 6

includes all transactions which have an immediate effect on the economy and GDP. Contains other accounts…
the goods account
the services account
income account

Question 7

the goods account

Answer 7

all transactions involving psychical goods

Question 8

the net merchandise trade

Answer 8

the balance of the goods account minus the balance of the services account

Question 9

the services account

Answer 9

all transactions involving services

Question 10

income account

Answer 10

records all income earnt (interest, dividends, wages, profits and salary’s)
income earnt = credit
income paid = debit

Question 11

primary income

Answer 11

associated with foreign investment flows
compensation of labor
investment income

Question 12

secondary income

Answer 12

transactions where financial or real resources are provide without anything in return (foreign aid, gifts, donations)

Question 13

current account balance

Answer 13

surplus: more money was injected than was spent overseas by residents
deficit: more money leaked overseas than was injected into the economy

Question 14

Australia’s historical current account balance

Answer 14

Australia’s normally records a CAD

but has shifted into a CAS as of June 2019

Question 15

capital and financial account

Answer 15

records all the physical capital and financial transactions

Question 16

capital transfers

Answer 16

part of the capital account

an account that records all capital transactions

Question 17

non-produced non-financial assets

Answer 17

part of the capital account

an account that records any transactions of non-produced, non-financial assets (copyrights and patents)

Question 18

the financial account

Answer 18

records all transactions associated with changes of ownership of a countries foreign financial assets and liabilities. (shares, loans, bonds)
include foreign investment in a country

Question 19

financial account surplus

Answer 19

AIA < FIA = surplus
foreign investment into Australia’s is larger than Australian investment aboard
Australia’s relies on foreign investment

Question 20

financial account deficit

Answer 20

AIA > FIA = deficit
Australia’s investment abroad is larger than foreign investment into Australia
Australia sharing funds with the rest of the world

Question 21

direct investment

Answer 21

> 10% equity

Question 22

portfolio investment

Answer 22

equity and debt securities

<10%

Question 23

reserve assets

Answer 23

monetary gold and FOREX

Question 24

net errors and omissions

Answer 24

an additional account to ensure that the BOP always balances.

Question 25

impacts on the CAB

Answer 25

changes in....
economic growth
unemployment 
inflation 
terms of trade 
FOREX

Question 26

BOP effects

Answer 26

GDP (X +M + G + [X - M

Question 27

Cyclical VS. Structural

Answer 27

cyclical factors: temporary and subject to frequent change (linked to the trade balance)
structural factors: more premiant and take time to change (linked to primary income)

Question 28

cyclical factors

Answer 28

domestic business cycle 
world business cycle 
exchange rate 
commodity prices 
terms of trade

Question 29

structural factors

Answer 29

investment savings gap
foreign investment
foreign debt

Question 30

SI stances

Answer 30

S > I = CAS

S < I = CAD