The balance of payments on the current account Flashcards Preview

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Flashcards in The balance of payments on the current account Deck (20)
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1
Q

What does the current account refer to?

A

The trade in goods and service

2
Q

What are the 4 sections of the current account?

A

Trade in goods
Trade in services
Investment income
Current transfers

3
Q

What are visibles?

A

Exports or imports that are tangible

4
Q

What are invisibles?

A

Exports or imports that are intangible

5
Q

What is the balance of trade?

A

Visible exports minus visible imports

6
Q

What is deindustrialisation?

A

A fall in the proportion of national output accounted for by the manufacturing sector of the economy

7
Q

What is globalisation?

A

The ability to produce goods anywhere in the world and sell them in any country

8
Q

How can a country improve their balance of payments? (2)

A

Increase the levels of research and development and investment

9
Q

Why is the trade balance important?

A

Exports are an injection -> multiplier effect

10
Q

What does investment income measure?

A

Measures the earnings made from investments overseas minus income flowing abroad from foreign investments in the UK

11
Q

What does current transfers measure?

A

Measures the transfers of money between countries

12
Q

What factors affect the changes in the current account? (4)

A

Value of the currency
AD
Inflation
Labour productivity

13
Q

How does the value of the currency affect the current account

A

SPICED, Imports > Exports

WPIDEC, Exports > Imports

14
Q

How does AD affect the current account?

A

A rise in AD -> consumers likely to spend their money on imported goods
Trade deficit

15
Q

How does inflation affect the current account?

A

If an economies inflation rate is higher than other economies, exports will fall
Trade deficit

16
Q

How does labour productivity affect the current account?

A

Higher productivity = more competitive = lower prices = more exports

17
Q

If an economy becomes less competitive, what will happen?

A

A fall in AD = More unemployment = more imports

18
Q

What is a benefit of having a current account deficit?

A

The economy is consuming more than they are producing

19
Q

When will an increase in exports be beneficial to an economy? Why?

A

In a negative output gap

Because in a positive output gap it will add to inflationary pressure

20
Q

What is a current account equilibrium?

A

Where the current account exercises mo effect on the domestic macroeconomy