BOP

Question 1

3. Components of the Current Account

Answer 1

The components of the Current Account are: trade in goods, trade in services, investment income and current transfers.

Question 2

1. Reasons for demergers

Answer 2

1. Demergers reduce diseconomies of scale.
2. Demergers enable each new separate firm to specialise.
3. A firm can sell one of its demerged divisions and its assets to raise funds.
4. Demergers reduce conflicts between different cultures within a firm.

Question 3

1. Investment Income

Answer 3

A component of the Current Account which includes any rent or profit earned on an investment made abroad.

Question 4

2. Current Transfers

Answer 4

When money is transferred abroad without getting any goods or services back in exchange.

Question 5

1. Current Account Deficit

Answer 5

When total outflows from the current account are greater than total inflows.

Question 6

4. Trade Balance

Answer 6

Total value of exports minus total value of imports.

Question 7

1. Expenditure Reducing Policies

Answer 7

Policies which aim to reduce expenditure on all goods in order to reduce import expenditure and improve the current account.

Question 8

2. Expenditure Switching Policies

Answer 8

Policies which aim to switch expenditure from imported goods to domestic goods. They include trade barriers and low-interest rates.

Question 9

what is the 3 things involved in the financial account

Answer 9

• portfolio investment (bonds,shares)
• FDI
• Reserves - gold

Question 10

• 4 consequences of a current account deficit

Answer 10

• finance debt through more bonds, higher interest rates due to uncertainty
• uncertainty means ppl selling off £s leading to a depreciation
• AD shifts inwards
• increases supply of money - lowering value

Question 11

country with low inflation

Answer 11

• st lucia - 0.1