Measuring the Balance of payments Flashcards
(9 cards)
What is the Balance of payments?
Refers to the international flow of money
The flow of money out and into a country
The value of M and X calculated not the volume
What happens if prices change but the volume remains the same?
The value of X and M will change
What is the Current account?
It records the international exchange of goods and services
What are the four sections of the C.A?
1)Trade in goods - visible goods and exports
2)Trade in services - ‘invisible trade’ eg. tourism, insurance, transport
3)International flows of income earned as salaries, interest, profits and dividends.
4) Transfers of money from one person or Gov to another
eg. foreign aid, money from family members
What is the problem with the balance of payments?
It’s not always balanced - flow of money in may not balance the flow out
When is there a surplus?
When money flowing in is greater than money flowing out
When is there a deficit?
When money flowing out exceeds money flowing in
Are deficits good or bad?
Not necessarily bad - might be a sign that the country is uncompetitive but governments want to avoid long-term deficits as that could cause big problems
What is the aim for the Balance of Payments?
To have a balanced balance of payments (specifically the CA)
