Unit3 AoS3 DP2-3 - Balance of Payments

Question 1

Balance of Payments

Answer 1

Is a quarterly or annual statistical record of financial transactions between Australia and the rest of the world.

The overall Balance of Payments is broken into two main sub-accounts:

The Current Account Balance – records the value of CREDITS and DEBITS for goods, services, primary and secondary incomes over a period and measures NET FLOW of trade and income.

The Balance on Capital and Financial Account - records the value of CREDITS and DEBITS for capital and financial transactions over a period and measures NET CHANGES IN OWNERSHIP of assets and liabilities.

The Balance of Payments will always have a ZERO BALANCE at the end of a particular period, the two accounts offset by: CAD = CAFAS and CAS = CAFAD

Question 2

Current Account Balance

Answer 2

Records the value of credits and debits for goods, services, primary and secondary incomes over a period, between Australia and the rest of the world. The CA measures NET FLOW of Trade and Income.

Question 3

Net Goods

Answer 3

Is a sub-account of the Balance of Payments Current Account, and records total value of credits for goods exported, minus total value of debits for goods imported, over a period.

Question 4

Net Services

Answer 4

Is a sub-account of the Balance of Payments Current Account, and records total value of credits for services exported, minus total value of debits for services imported, over a period.

Question 5

Net Primary Income

Answer 5

Is a sub-account of the Balance of Payments Current Account, and records total value of primary income received from overseas, minus total value of debits for primary income paid overseas, over a period.

Question 6

Net Secondary Income

Answer 6

Is a sub-account of the Balance of Payments Current Account, and records total value of secondary income received from overseas, minus total value of debits for secondary income paid overseas, over a period.

Question 7

Capital and Financial Account Balance

Answer 7

Records the value of credits and debits for capital transfers, acquisition for non-produced non-financial assets, investments, and reserves, also accounting for any errors and omissions. The CAFA measures NET CHANGES IN OWNERSHIP of assets and liabilities.

Question 8

Capital Account Balance

Answer 8

Is a sub-account on the Balance of Payments Capital and Financial Account. It records net transactions for capital transfers and non-produced, non-financial assets.

Question 9

Capital Transfers

Answer 9

Net inflow/outflow of funds in Australia. For example, transfer of funds from migrants

Question 10

Non-Produced Non-Financial Assets

Answer 10

Net inflow/outflow of funds in Australia. For example, sale of copyright, patents, franchises, trademarks.

Question 11

Financial Account

Answer 11

Is a sub-account on the Balance of Payments Capital and Financial Account. It records net transactions for direct investment and portfolio investment.

Question 12

Direct Investments

Answer 12

Purchase, setting up or expansion of companies and assets in Australia or overseas.

Question 13

Portfolio Investments

Answer 13

Purchase of shares, debt, and securities in Australia or overseas.

Question 14

Current Account Deficit

Answer 14

Is when the total value of current account debits exceeds total value of current account credits for goods, services, primary and secondary incomes over a period.

Question 15

Current Account Surplus

Answer 15

Is when the total value of current account credits exceeds the total value of current account debits for goods, services, primary and secondary incomes.

Question 16

Cyclical Influences

Answer 16

Affect the current account balance causing it to become stronger or weaker as aggregate demand and economic activity slows or rises. Cyclically strong domestic spending increases imports and slows exports, weakening the current account balance. Also, weaker spending overseas on Australian exports has a similar effect. In contrast, cyclically weaker domestic spending, or stronger overseas spending, strengthens the current account balance.

Question 17

Structural Influences

Answer 17

Affect the current account balance causing it to become stronger of weaker depending on supply-side structural factors. For example, high production costs, tax rates, and low productivity increases prices and inflation, dampening domestic spending, and therefore weakens the current account balance. Conversely, low production costs, tax rates and high productivity decreases prices and inflation, boosting spending, and therefore strengthens the current account balance.

Question 18

National Savings-Investment Gap

Answer 18

Is the shortfall in value between what Australian households, firms and governments save and the level of their investment. This must be covered by overseas borrowing or debt.