2.1.4 - Balance of payments Flashcards

1
Q

What is the balance of payments

A

Balance of payments records all financial transactions made between consumers, businesses and the government in one country with other nations

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2
Q

What are the three main accounts on the BOP

A
  • Current account
  • Capital account
  • Financial account
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3
Q

What is the current account

A

Measures the difference between money and credit going in and out of an economy

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4
Q

Trade balance in goods

A
  • Manufactured goods
  • Capital technology/machinery
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5
Q

Trade balance in services

A
  • Banking
  • Insurance
  • Tourism
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6
Q

Examples of net primary income from overseas assets

A

Flow of profits, interest and dividends from and to investments in other countries

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7
Q

Examples of net secondary income

A
  • Overseas aid/debt relief
  • UK payments to the EU and other international institutions
  • Net remittance flows from migrant workers
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8
Q

Current account deficit

A
  • when a country is running an external deficit
  • current account deficit nations are debtor countries
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9
Q

Current account surplus

A
  • external surplus
  • net inflow of income into the economy
  • current account surplus nations are creditor nations
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10
Q

Effects of a current account deficit

A
  • loss of aggregate demand, causes slower rate of real GDP growth thus reducing living standards
  • loss of jobs in home-based industries, contributed to regional decline and structural unemployment problems
  • currency weakness and high inflation
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11
Q

Causes of a current account deficit

A
  • Poor price and non-price competitiveness
  • Strong exchange rate affecting exports and imports
  • Recession in one or more major trade partner countries
  • Volatile global prices
  • Booming domestic economy
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