| What is the Balance of Payments? | -This is recording the Inflow and Outflow of Money of a Nation]
-The BOP is made up of the Current Account, Capital Account and Financial Account |
| What are the 4 Sections of the Current Account | -Trade in Goods
-Trade in Services
-Investment and Employment Income [Primary Income]
-Transfers [Secondary Income] |
| Detail the UK’s Trade in Goods | -Tade in Goods will measure the Imports and Exports of Visible Goods Value
-UK’s Biggest Exports here are Machinery, Medicine and Pharmaccuticals
-UK’s Biggest Imports is also Machinery, Mineral Fuels and Oils |
| Details the UK’s Trade in Services | -Trade in Services measures Imports and Exports in terms of Insurance or Tourism
-UK’s Biggest exports here are Banking and Insurance
-UK’s Biggest imports here are Tourism [Holidays] |
| Describe the UK’s Primary Income [Investment and Employment Income] | -This covers the money In and Out of the UK from Employmnet or Earlier Investmnet
-Deposits in Foreign Banks get Interest Payments
-Operations set up abroad by a UK Firm will generate Profit for the UK Firm
-Shares in Foreign Firms will give Dividend Payments to UK Shareholders
-Salaries to UK Residents for working Abroad |
| Descibe the UK’s Secondary Income [Transfers] | -Transfers are the Movement of Money between Nations that aren’t buying Goods and Services and aren’t Investment
-Transfer are just Payments to Family Memebers abroad and Aid Paid to foreign nations |
| Describe the UK’s Balance of Payments using all componest | -Large Defict on Visible Trade - UK Imports more than Exports
-Surplus ish on Invisivle Trade - Uk Exports more here [Not enough to match the Imports of Visible Trade]
-Surplus on Flows of Investment Income - UK Gets more Payments from Investments than it dishes out
-Defict on Transfers - The UK makes Aid Payments and other types
-Overall, the UK has a Defict on its Current Account |
| Why may High Levels of Consumer Spending lead to a Current Account Deficit? | -Economic Growth can lead to Firms and Consumers Importing more.
-Depends on Income Elasticity of Imports. If its High then Imports will be Substanial |
| How can Nations not being able to Compete Internationally lead to a Current Account Deficit? | -Nations that can’t Compete well will see Exports tank
-Maybe because of Lower Cost of Productions in other Nations, itself can come from Structual Probems [Immobility of Labour] Better Technology making Production more Efficient
-Stronger Currencies will make Goods more Expensive for Foreign Buyers, while making Imports Cheaper
-Inflation increasing means Exports will fall as it bcomes Expensie, while Imports will Rise as its becomes more Viable than Domestic Products |
| How can External Shocks lead to a Currenct Account Deficit? | -If the Price of Imported Raw Materials goes up, and Demand is Price Inelastic [Qd changes Less than Price] then it will Pay more in the Short Run
-Economic Downturn in Nations to which another Exports too can mean the Exporter gets Less Exports
-Trade Barriers on Goods means that Exports can suddenly Change |
| How can a Nation experience a Current Account Surplus? | -During a Recession, Domestic Producers unable to Produce at Home, may turn to International Market leading to more Exports
-Weak Currency making its Exports cheaper and Imports more Expensive
-Interest Rates causing more Saving and less Spending |
| What are the Consequnces of a Balance of Payment DEFICIT | -This can indictae the Economy is Uncompetitive.
-But its not always Bad. It may mean the People are Wealthy to have a lot of Imports, and enjoy a Higher Standard of Living.
-However, it can also lead to the Value of the Currency falling, making Imports higher in the Short Run. Inflation!
-This also can mean Job losses at Home as Goods being Imported means Less have to be made Domesticallly - Unemployment |
| What are the Consequnces of a BoP Surplus | -Surpluses means the Economy is Competitive
-But if its done that for a long time, Japan, then Stagnation can experience. This means Supply for Domestic Conumsption is Low and Economic Activity halts
-Overreliance on Exports
-If its done [Surplus] via a Undervalued Currency, then Inflationary Pressure [Price of Imported Componets] will Rise making Price Levels rise as a result. |
| How may Governments try to Correct their Balance of Payment Deficit? | -Policies may be exeted to Reduce Domestic Prices meaning Exports Up, Imports down
-Impose Restrctions on Imports like Tarrifs to make them more Expensive [May cause Inflation if Price Inelastic]
-Devalue [Fixed Exchange] or Depreciate [Floating] the Currency making Exports Cheaper and Imports Expensive [Marshall Lerner Condition]
-Governments use Fisical or Monetary Policy to reduce Spending [Less Projects using Imported Materials and less Borrowing] |
| Why can Major Economies trying to Correct their Imbalances in their Balance of Payments have Lasting Impacts on the World | -Supply-side Polices to fix Deficits can increase World Trade and Growth
-Restrictions on Imports can make Trade Wars, leading to Trade slowing down and Global Trade and break WTO Rules
-If Governments try to Fix their Deficit by Reducing Imports from Developing Nations, then their Exporters will have Limited Economic Growth making Unemployment Rise and Holding them back in Global Strides in Efficiency |
| What does the Capital Account show? | -Has the Transfer of Non-Monetary and Fixed Assets, such as Immigrants and Emigrants [Immigrants comes to UK --> Their assets is UK Assets] |
| What does the Financial Account show? | -The Movement of Financial Assets like:
-Foreign Direct Investment [FDI]
-Portfolio Investment - Investing in Financial Assets [Shares] Abroad
-Financial Derivatives - Contracts which has its Values bound to a Value of an Asset - Like a Currency
-Reserve Assets - Held by the Bank of England to be used when Needed |
| What should the Relationship between the Capital Account and Financial Account be? Why may that not always be the Case? | -They both should Balance each other out so there is no Net Gain
-Errors and Omissions however makes it Hard for them to Balance |
| What are Long Term Flows Capital and Financial Flows? | -These are things like FDI and Portfolio Investment. They are Predictable and can be used if a Nation has a Comparatives Advantage on producing something |
| What are Short term Flows of Capital and Financial Flows [Hot Money] | -Based on Speculation and Firms/Investors trying to make Money Quickly. For Example, moving Money from 1 Currency to another expecting to make a Profit via Changes in Exchange Rates [Franks:Mark] |
| Why does International Economies being more Connected be an Advantage or Disadvantage? | -Firms and Economies can Grow on a New Scale and Ways
-Countries now Dependent on each other - so therefore Crisis in One Nation can affect another. [2008]
-Global Trade Imbalances also means that Politics gets Negatively Impacted. America is in a Deep Current Account Deficit with China, so America posing up Tariffs to the Chinese will harm the 2 Superpowers and slow down Economic Growth and Trade |
