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17 Cards in this Set
- Front
- Back
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Balance of payments |
Record of all a country’s financial dealings with the rest of the world over the course of a year |
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Three parts of the current account |
-balance of trade -primary/investment income -secondary income/ current transfers |
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Balance of trade |
Difference between value of services and goods exported and imported |
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Investment income |
Income earned by citizens from assets overseas minus income earned by foreign citizens owning assets in this country |
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Current transfers |
Money transfers between central banks or grants from bodies like the EU |
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Three parts of the balance of payments |
-current account -financial account -capital account |
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Financial account |
Transactions associated with changes of ownership of UKs foreign financial assets and liabilities |
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Capital account |
Migrants bringing assets with them or debt forgiveness to developing countries |
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FDI |
Foreign direct investment- net transfer of funds to purchase and acquire physical capital such as factories and machines |
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5 factors affecting the current account deficit/surplus |
-productivity -value of currency -rate of inflation -economic growth/home income levels/incomes abroad - non price factors |
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4 measures to reduce a current account deficit |
-expenditure reducing policies, less spending on imports -expenditure switching policies, tariffs or quotas to switch from import to domestic -supply side policies, improved quality of exports, increased international competitiveness -do nothing, floating exchange rates ALL MEASURES SHOULD BE TARGETED CAREFULLY TO THE CAUSE, CYCLICAL OR STRUCTURAL
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Expenditure reducing policies |
Reduction in ad, deflationary fiscal policy like higher tax rates |
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Expenditure switching policies |
Use of tariffs, quotas or currency devaluation to make domestic goods more attractive |
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J curve |
A time lag will occur after a devaluation, deficit will increase as firms are tied by contracts but will turn to a surplus over time as contracts can be exited |
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Marshall-Lerner condition |
For their to be an improvement in the current account after a devaluation the PED for imports+exports must be greater than 1 |
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4 problems of having a current account deficit |
-persistence is a sign of severe structural problems eg U.K. skills and productivity problems -large/ persistent cost a lot to offset for the government -deficit shows lack of domestic demand, problems for employment -weaker currency |
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Problems of a current account surplus |
-shows export lead growth, lack of home spending -high surpluses maybe associated with low wages and therefore low living standards at home -high X-m demand pull inflation -large surpluses may trigger protectionist responses form trading partners eg trump and China |
