balance of payments

balance of payments

the record of all financial transactions between one country and the rest of the world

current account

the record of trade in goods and services, income flows an transfers between one country and the rest of the world

balance on payments on current account

the total of net trade in goods and services, income flows and transfers between one country and the rest of the world

balanced current account

exports revenue plus inflow of income and transfers = import spending plus outflow of income and transfers

current account surplus

exports revenue plus inflow of income and transfers > import spending plus outflow of income and transfers

current account deficit

exports revenue plus inflow of income and transfers < import spending plus outflow of income and transfers

when is a deficit of particular importance and concern

if its large in size, if it is due to a factor that will take a long time to change, if it is caused by problems in the economy ( like falling demand for domestic goods )

when can the deficit not be so important or a concern

if its temporary, it reduces inflation, it leads to a fall in exchange rates, it is only a small percentage of GDP so the debt can be paid for by the country

when is a budget surplus of importance and benefit

it reflects rising total demand for domestic goods, it decreases debt of a country as more money in flowing in

when is a budget surplus not as important or a benefit

it causes rising inflation, it hides the causes that have a negative impact on global economic growth , it leads to a rise in exchange rates

causes of a current account surplus

reputation, state of economy, falling exchange rate, net inflow from investments

causes of current account deficit

reputation, declining industries, rising exchange rate, falling overseas income, net outflow from investments

how can reputation affect current account

countries with poor reputation of poor quality or being too expensive - it will decrease level of exports

how can exchange rates affect current account

falling exchange rate means its cheaper for foreigners to buy exports and more expensive for citizens to buy imports, causing surplus

how can investments affect current account

if the investment foreign residents have made in the UK earns less than the investments UK citizens have made in other countries, there is surplus

how can state of economy cause current account surplus

if domestic economy is weak , firms may look to produce more for foreign markets

how can falling incomes overseas cause current account deficit

demand for our exports will fall

how can declining industries lead to current account deficit

if an Industry declines, demand for it will decrease meaning exports decrease