Balance of Payment, AD, National Income, Economic Growth Flashcards
(29 cards)
Balance of Payment
Inflows and outflows
All financial transactions between consumers, firms, and government
What is inflow
Exports
What is Outflow
Imports
What is trade deficit
Imports > Exports
Value of imported G +S is higher than the value of a country’s exports
What are the three sections of the balance of payments
Current Account
Capital Account
Financial Account
What is current account and what doe it includes
Shows the flows of income from trade and the use of factors of production
Balance of trade in goods
Balance of trade in services
Net Primary income
Net Secondary income
Define balance of trade in goods
Value of exported goods minus value of imported goods (Deficit)
Define Balance of trade in services
Value of exported services minus value of imported services (Surplus)
Define Net Primary Income
Flows of income from abroad minus the flows of income from foreign investments in UK
- includes interest, dividends, profits, remittances
Used to be surplus, now deficit
Inflow- UK firm making profit in China
Net Secondary Income
Transfers of money received from abroad minus transfer of money paid from the UK
E.g overseas development aid, military aid
Deficit
What is Capital Account
Transfer of patents, copyrights
What is Financial Account and what does it include
Transactions resulting in a change of ownership of financial assets between UK residents and non residents
Net Balance of FDI- buying of productive assets outside of country’s ownership- inward FDI from non-residents
Net Balance of Portfolio Investment- bonds, shares, stocks
Bank loans and short term speculative capital- hot money flows (due to interest rate/ exchange rate changes)
What Macroeconomic objectives clash with balance of payments
High economic growth- current account deficit, as increase AD, increase import of raw materials
Low Unemployment- income used on buying imported goods- current account deficit
Export led growth- inflation as AD increase, demand pull inflation
AD components percentage of GDP
C-64%
I-15-20%
G-18-20%
(X-M)-5%
What is saving
Disposable income not spent- delayed consumption
Wealth Effect
Owning properties and as they increase in value, increase consumption
What is net investment
Gross investment - capital depreciation (worn out machinery)
What is accelerator effect
Increase in GDP results in more than proportionate rise in capital investment
Increase in AD increases production, and if firms think that high levels of AD will be sustained, there would be increasing spending on capital goods to meet demand
What are the injections
Exports
Government spending
Investment
What are the leakages
Tax
Saving
Imports
What is multiplier effect
Increase in injection cause a more than proportionate increase in GDP
E.g increase G on investment project for NHS, increase income for businesses, more employment, higher income
One person’s spending will become one person’s income
MPC and multiplier
The higher the MPC, the bigger the multiplier
Calculate Multiplier
1/ MPS + MPT + MPM
1/ (1-MPC)
MPC +MPS +MPT +MPM =1
MPW= MPS +MPT +MPM
What is actual growth
Percentage change in GDP
