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23 Cards in this Set
- Front
- Back
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BOPCA |
- can have a deficit or surplus - adding every countries BOPCA should equal zero - negative = recorded money out of a country - positive = recorded money into a country |
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4 main parts of a BOPCA |
1. Trade in goods 2. Trade in services 3. International flows of income 4. Transfers of money |
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1. Trade in goods |
- good = physical, tangible product - trade = exports and imports (when x=m it is a balance of trade) - UK balance of trade = deficit |
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2. Trade in services |
- intangible, non-physical - foreign tourists to the UK = UK export (invisible) - UK citizens to another country = UK import (invisible) - UK invisible balance of trade = surplus but decreasing |
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3. International flows of income |
Land = rent Labour = rages Capital = interest Enterprise = profit |
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4. Transfers |
the movement of money between countries which aren't paying for goods and services or the result of investment e.g. foreign aid |
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3 causes of a current account deficit |
1. High levels of consumer spending 2. International competition 3. external shocks |
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1. High levels of consumer spending |
- consumers buy more imports when there is economic growth - if the YED for imports is high there will be a greater increase in imports - the YED may be less for exports |
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2. International competition |
- countries that can't compete will see a reduction in exports - competitiveness is affected by costs of production, e.g. labour costs, advancement of technology, and structural problems e.g. |
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3. External shocks |
- rise in world prices of raw materials which are price inelastic e.g. coal, oil = country will pay more for them in the short run - economic downturn in countries to which a country exports to = reduction in exports - trade barriers can reduce exports |
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Causes of a current account surplus |
- country has been in a recession (fail to sell products within the country so will focus internationally) - domestic currency has a low value - high interest rates = less saving and more spending |
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Causes of a BOP deficit |
- low exports, high imports or both |
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Consequences of a BOP deficit |
- indicates an economy is uncompetitive - could mean people are wealthy enough to afford more imports = higher standard of living - could cause a fall in the value of a currency = higher import prices = inflation - job losses domestically = unemployment increase |
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Consequences of a BOP surplus |
- can show an economy is competitive - a prolonged surplus can cause stagnation, meaning there is low economic growth - a large surplus may show an over reliance on exports - if it is created by a country with undervalued currency it will cause inflammatory measured e.g. import price will increase |
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Ways that the government could try to correct BOP inbalances |
- policies to reduce the price of domestic goods - restrictions on imports e.g.tariffs - depreciate the currency (makes imports dearer and exports cheaper) - fiscal or monetary policy to reduce spending in the economy, but this could lead to a decrease in economic growth - try to create a surplus |
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Affects of international trade |
- allows firms and economies to grow worldwide - economies are now very dependent on each other so a banking crisis or recession in one country could harm another's economy - there is a risk of global trade inbalances |
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4 things earnings are dependent on |
1. Labour skill (training and education) 2. Market forces in the labour market (shortages and surpluses of different labour will change pay rates) 3. Geography (earnings differ in different areas of a country) 4. Level of responsibility (more responsibilities = higher pay) |
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Government distribution of income |
- may want to distribute it more equally = welfare increase and poverty decrease - higher earners save more and lower spend more so a redistribution will increase overall spending and increase AD - can reduce the net income of high earners by taxing and increase it for low earners with welfare payments |
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Consequences of government redistribution of income |
- higher wages = incentive to work harder so this motivation could be lost if wages were reduced - wealth creation can produce employment for others - spending by people with high incomes (luxury goods) creates jobs for others |
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Two main factors of government protection |
1. Damage/pollution to the environment 2. Depletion of finite resources caused by continued economic growth |
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1. Damage/pollution to the environment |
1. Identify the damage caused 2. Measure the cost of this damage 3. Use financial penalties or enforce restrictions or bans to reduce damage and provide an incentive to reduce damage |
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1. Damage/pollution to the environment (incentives to make reductions) |
1. Non-market policies - bans or limits in polluting practices e.g. banning cars with extreme levels of emissions 2. Market policies - influencing the cost of polluting so that firms and individuals make reductions e.g. tradeable permits |
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2. Depletion of finite resources caused by continued economic growth |
- some governments feel it's necessary to use non-renewable resources more wisely to make them last longer - governments want to encourage the development and use of renewable resources (may use financial incentives) |
