Theme 4:1.7:Balance of Payments

Question 1

BoP definition

Answer 1

a country’s record of its transactions with other countries

Question 2

components of BoP

Answer 2

current account
capital and financial account

Question 3

current account

Answer 3

composed of trade in goods. trade in services and income and current transferss

Question 4

capital account

Answer 4

record of immigrants and emigrants sending money abroad or bringing it into the UK

Question 5

financial account

Answer 5

3 parts:FDI,portfolio investments and other investments
FDI is the flow of money to purchase part of a foreign firm(more than 10% of shares)
Portfolio is the same but less that 10%

Question 6

countries that tend to have a BoP balance

Answer 6

France and Chile

Question 7

countries that tend to have a BoP deficit

Answer 7

UK and USA

Question 8

countries that tend to have a BoP surpulus

Answer 8

China and Germany

Question 9

short term causes of deficits and surpluses

Answer 9

high demand-
strong exchange rate-reduces UK price of imports
high level of relative inflation

Question 10

short term surplus diagram

Question 11

medium term causes of deficits and surpluses

Answer 11

loss of comparative advantage as people will transfer their purchases to other countries

Question 12

long term causes of deficits and surpluses

Answer 12

lack of capital investment-lack of productivity-Germany has 35% higher productivity per hour worked than the UK(deficit)

de-industrialisation-decrease in manufacturing(deficit)

large amounts of natural resources(surplus)
more competitive(surplus)
corruption(deficit)