Unit3 AoS3 DP2-3 - Balance of Payments Flashcards
Balance of Payments
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
Current Account Balance
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.
Net Goods
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.
Net Services
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.
Net Primary Income
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.
Net Secondary Income
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.
Capital and Financial Account Balance
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.
Capital Account Balance
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.
Capital Transfers
Net inflow/outflow of funds in Australia. For example, transfer of funds from migrants
Non-Produced Non-Financial Assets
Net inflow/outflow of funds in Australia. For example, sale of copyright, patents, franchises, trademarks.
Financial Account
Is a sub-account on the Balance of Payments Capital and Financial Account. It records net transactions for direct investment and portfolio investment.
Direct Investments
Purchase, setting up or expansion of companies and assets in Australia or overseas.
Portfolio Investments
Purchase of shares, debt, and securities in Australia or overseas.
Current Account Deficit
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.
Current Account Surplus
Is when the total value of current account credits exceeds the total value of current account debits for goods, services, primary and secondary incomes.
Cyclical Influences
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.
Structural Influences
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.
National Savings-Investment Gap
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.
