The balance of payments on the current account

Question 1

What does the current account refer to?

Answer 1

The trade in goods and service

Question 2

What are the 4 sections of the current account?

Answer 2

Trade in goods
Trade in services
Investment income
Current transfers

Question 3

What are visibles?

Answer 3

Exports or imports that are tangible

Question 4

What are invisibles?

Answer 4

Exports or imports that are intangible

Question 5

What is the balance of trade?

Answer 5

Visible exports minus visible imports

Question 6

What is deindustrialisation?

Answer 6

A fall in the proportion of national output accounted for by the manufacturing sector of the economy

Question 7

What is globalisation?

Answer 7

The ability to produce goods anywhere in the world and sell them in any country

Question 8

How can a country improve their balance of payments? (2)

Answer 8

Increase the levels of research and development and investment

Question 9

Why is the trade balance important?

Answer 9

Exports are an injection -> multiplier effect

Question 10

What does investment income measure?

Answer 10

Measures the earnings made from investments overseas minus income flowing abroad from foreign investments in the UK

Question 11

What does current transfers measure?

Answer 11

Measures the transfers of money between countries

Question 12

What factors affect the changes in the current account? (4)

Answer 12

Value of the currency
AD
Inflation
Labour productivity

Question 13

How does the value of the currency affect the current account

Answer 13

SPICED, Imports > Exports

WPIDEC, Exports > Imports

Question 14

How does AD affect the current account?

Answer 14

A rise in AD -> consumers likely to spend their money on imported goods
Trade deficit

Question 15

How does inflation affect the current account?

Answer 15

If an economies inflation rate is higher than other economies, exports will fall
Trade deficit

Question 16

How does labour productivity affect the current account?

Answer 16

Higher productivity = more competitive = lower prices = more exports

Question 17

If an economy becomes less competitive, what will happen?

Answer 17

A fall in AD = More unemployment = more imports

Question 18

What is a benefit of having a current account deficit?

Answer 18

The economy is consuming more than they are producing

Question 19

When will an increase in exports be beneficial to an economy? Why?

Answer 19

In a negative output gap

Because in a positive output gap it will add to inflationary pressure

Question 20

What is a current account equilibrium?

Answer 20

Where the current account exercises mo effect on the domestic macroeconomy