4.1.7 Balance of payments

Question 1

3 sections of balance of payments

Answer 1

1. Current accounts
2. Financial account
3. Capital account

Question 2

Equation for current account

Answer 2

Current account= Balance of Trade + Blanace of invisibles(services) + Net income and current transfers

Question 3

Defenition of balance of payments

Answer 3

record of all financial dealings in and out of a country

Question 4

Current account

Answer 4

Records payments for the purchase and sale of income, goods and services

Question 5

Difference in trade in goods and trade in services

Answer 5

Trade in goods= physical products that are traded
Trade in services= serivices (invisibles) that are traded in and out of the country

Question 6

What are income and current transfers

Answer 6

> Income transfers= money people make abroad going back to home country. E.G. english company in japan makes money and sends it back to uk is positive whereas a polish person could wokr in uk and send money they make back to poland (Negative)
Current transfers= usually doen by government into overseas organisations like the EU

Question 7

2 sections of income and current transfers

Answer 7

Primary income= profits dividends from aboroad ( money made by uk bussinesses that goes back to uk)
Secondary income= government transfers to overseas organisations - EU

Question 8

What is the capital account

Answer 8

Shows money entering/ leaving the country due to immagration/migrantion

Question 9

3 components of financial account

Answer 9

1.Foreign direct investment(FDI)
2.Portfolio investment
3. Other investments

Question 10

What is FDI

Answer 10

Firms investment in other countries over 10% of a firm . Apple buy % of a manufacturing firm in brazil to produce phone parts.

Question 11

What is portfolio investment

Answer 11

FDI but only buying less than 10% of a firm

Question 12

Short term causes of BOP surplus/ deficit

Answer 12

1. High level of demand > supply -> people import goods as there is not enough supply
2. Strong exchnage rate-> imports cheaper exports more expensive
3. Relative high inflation -> price of exports increase

Question 13

Medium term causes of BOP surplus/ deficit

Answer 13

1. Loss of comparative advantages-> people export from different countries-> uk ecports decrease

Question 14

Long term causes of BOP surplus/ deficit

Answer 14

1. Lack of capital investment-> out of date tech-> decrease quality and productivity-> demand for imports increases
2. Large amount of naturual resources-> supply> population-> need to ecport e.g. saudi oil
3. Corruption-> hard to set up business-> less domestic firms

Question 15

Disadvantages of Tariffs and Quotas

Answer 15

1. Cause trade wars

Question 16

Benefits of tariffs and quotas

Answer 16

1. Make imports less atractive as they have to raise prices or limit demand