booklet 7 - balance of payments

define - the balance of payments account

the balance of payments is the record of all financial transactions over time between the economic agents of one country and other countries

define balance of visible trade

the value of visible exports - visible imports

define the current account

the part of the BOP where payments for the buying and selling of goods and services economies are recorded

what is a current account deficit

a deficit exists when the value of imports is greater then the value of exports

what is a current account surplus

a surplus is where the value of exports is greater then the value of imports

define “invisibles”

trade in services. transfers of income and other payments and receipts

define - visables

trade in goods

what is the financial account of the balnace of payments

this records almost all the flows of financial capitals into and out of the UK

what is the capital account of the balance of payments

The capital account records the transactions in fixed assets

how does a C.A deficit occur

• low productivity and competitiveness

• high value of a country’s exchange rate

• high relative inflation

• non price factors - quality and design

how does C.A surplus occur

• abundant recourses

• strong underlying competativeness

why does C.A deficit matter?

• could lead to a loss of AD - slower rate of real gdp growth - reduced living standards

• might contribute to lower home based jobs - regional decline - structural unemployment

• currency weakness = higher inflation

• lack of competitiveness - supply side weakness