2.1.4 Balance of Payments

• Macroeconomic Performance


  The overall performance measured by changes in output, investment, prices, jobs, trade and living standards and also the distribution of income and wealth.
• Balance of Payments


  A record of all financial transactions between an economy and the rest of the world.
• Balance of Trade


  The difference between the value of country’s exports and imports of goods and services
• Capital Account


  A section of the current account which debt forgiveness, sale/transfer of patents, copyrights, franchises, leases and other transferable contracts across borders
• Current Account

  Measures the difference between money and credit going in and out of an economy (through exports, imports and income paid on assets both home and abroad).
• Current Account Deficit

  When net external trade and income is negative leading to a net outflow of demand from the circular flow.
• Current Account Surplus


  When net external trade and income is positive, a net injection into the circular flow
• Cyclical Trade Deficit


  A trade deficit that arises purely due to changes in the business cycle, eg. when strong growth increases demand for imports.
• Exchange Rate


  The price of one country’s’ currency in relation to another
• Export Revenue

  Sales from selling goods and services overseas, an injection of aggregate demand.
• External Competitiveness


  The ability of businesses to sell their goods and services at competitive prices in a foreign country / overseas market.
• Hot Money


  Money that flows freely and quickly around the world looking to earn the best rate of return. It is invested in any asset whose value is expected to rise or accounts with high interest rates
• Net Primary Income

  Measures the net flow of profits, interest and dividends from investments in other countries and net remittance flows from migrant workers.
• Net Secondary Income/ Current Transfers


  Includes overseas aid/debt relief, military grants and (for the UK) net payments to the European Union
• Net Trade

  The balance between the monetary value of exports and imports.
• Overseas Assets

  Assets such as businesses, shares, property owned in overseas countries and which might generate a flow of primary income which is a credit item on the current account.
• Protectionism


  Restricting trade through tariffs and other forms of import controls such as quotas.
• Remittances

  Sending money to people in another country. For lower-income nations, remittance is a big contribution to their Gross National Income.
• Structural Trade Deficit


  A trade deficit that arises due to supply-side weaknesses
• Trade Deficit


  When a country imports a greater value of goods and services than it exports.
• Imported Inflation


  An increase in the price of imports caused by: import tariffs, weak domestic currency or inflation in the exporting country
• Causes of a Current Account Deficit


  • Rising real incomes (increased propensity to import)
  • Increased consumer spending (using loans to import)
  • Expanding productions (import raw materials)
  • Increased investment (may purchase capital abroad)
  • Strong exchange rates (SPICED)