MACRO - Balance of payments

BOP

Statement that records all transactions between a country & the rest of the world.

• Inflows added

• Outflows deducted

2 subaccounts

Current account - Transactions related to trade & income for factors of production

Capital & Finance account - Transactions related to investments

Current account

1. Visible account

   • All exports & imports of tangible goods

2. Invisible exports

   • All exports & imports of intangible services

3. Primary income account

   • All income incurred/earned for factor of production

4. Secondary income account

   • All one sided transfers between a country to another

Deficit in current account

• BOP current A/C - (-) value - value of imports & income expenditure>value of exports & income earned

• Balance of trade - visible import> visible export

• Service A/C - invisible import>invisible export

Surplus in current A/C

• BOP current A/C - (+) balance - value of exports & income earned>value of imports & income expenditure

• Balance of trade - visible export> visible import

• Service A/C - invisible export>invisible import

Causes of deficit

• Country has no demand from foreign countries

• Cannot produce wat they want - hv to import

• Doesn’t attract tourists

• FDI - money sent to home country

• Foreign debt

• Currency appreciation

• Economic growth - income increase - more imports

Impact of deficit

• Higher debt

• More choice - imports

• Threat to domestic bs’s

• Currency depreciation - imports higher - local currency dep^-n against foreign currency

• Overdependence