Balance of Payments

Question 1

What is a Balance of Payments

Answer 1

• a record of international payments over a year

Question 2

What is the Balance of Trade?

Answer 2

• Value of goods and services exported - value of goods and services imported

Question 4

What is a Current Account Surplus?

Answer 4

When more money is flowing into the country than flowing out
–> Current account is positive
–> Value of Net trade balance, net Primary Balance and Net secondary balance is positive

Question 5

What is a Current Account Deficit?

Answer 5

• More money flowing out of country than flowing in
  –> Current Account is Negative
  –> Value of Net trade balance, net Primary Balance and Net secondary balance is Negative

Question 6

What are the 4 Main Causes of a Current Account Deficit?

Answer 6

• Currency too strong, relative to others
  –> Exports will be Expensive , Imports are cheap
• High rates of Inflation
  –> (relative to other countries)
• High wages
  –> (relative to other countries)
• High rate of Economic Growth
  –> People with High Incomes buy more Imports

Question 7

What are the Main causes of a Current Account Surplus?

Answer 7

• Currency too weak (relative)
  –> Exports cheap, Imports Expensive
• Low rate of Inflation
  –> (relative to other countries)
• Low wages Costs
  –> (relative to other countries)
• Low rate of Economic Growth
  –> People on low wages buy less Imports -> Firms can Export More