The International Economy

Question 1

What is the balance of payments?

Answer 1

A record of all the financial transactions taking place between the UK and any other economy

Question 2

What are the 3 sections the balance of payments is split into?

Answer 2

1 capital account
2 financial account
3 current account

Question 3

What is the capital account?

Answer 3

• minor component of the balance of payments
• includes transfers of ownership of assets across borders and the purchases and sales of some non-financial assets

Question 4

What is the financial account?

Answer 4

• measures flow of financial capital into and out of the country
  consists of:
• net FDI (the buying of productive assets located outside the country of ownership)
• net portfolio investment: (the buying of financial assets located outside the country of ownership)
• short-term speculative capital: (money that can be moved between currencies immediately to maximise its return ‘hot money’)

Question 5

What is the current account?

Answer 5

measures the flows of income from:
- trade in goods and services
- use of factors of production
- other transfers between countries
looks at earnings made by the use of assets rather than assets themselves
consists of:
- trade in goods
- trade in services
- primary income
-secondary income

Question 6

Explain trade in goods & trade in services?

Answer 6

goods : values of UK exports - value of UK imports
services: value of UK exports - value of UK imports

Question 7

What are factors determining imports in the balance of the current account?

Answer 7

• foreign GDP (as it rises, foreign spending up, demand uk goods up, uk exports up)
• productivity (as it rises, uk produce more output for prop smaller inputs, efficiency means cost punit falls, allows competitive pricing, increase d uk exports)