Balance of payments

• What is one part of the balance of payments?

  One part is the current account, which measures the value of imports and exports.
• How does a strong pound affect imports and exports?

  A strong pound makes imports less expensive and exports more expensive.
• How does a weak pound affect imports and exports?

  A weak pound makes imports more expensive and exports less expensive.
• How can PPP assist in examining living conditions?


  It helps to compare relative living conditions of different countries
• What is the goal of price stability in government policy?


  To keep inflation low and stable.
• What is the Gini Coefficient?


  A measure of inequality.
• What do governments try to improve regarding the current account?


  International competitiveness.
• What does a positive trade balance indicate?


  Exports exceed imports.
• How does higher productivity affect efficiency?


  The higher the productivity, the more efficient it is to make goods and services.
• What does PPP stand for


  Purchasing power parity
• What does purchasing power parity mean


  Purchasing power parity is when a good is cheaper in one country than another
• Trade in Goods


  Measures the net exports (X - M) of visible goods
• Reasons for UK's trade in services surplus

  • UK has seen a shift away from primary and secondary sectors towards tertiary sector employment, thus specialising in the provision of services
  • This specialisation has meant that the UK is more competitive in the provision of these services, and can offer better services at lower cost
  • London has developed as one of the world's prime financial centres and become a major source of income and wealth generation in the UK
• What is an example of an exchange rate?



  £1 = €1.25
• What does currency refer to?


  The system of money in general use in a particular country
• How can the value of currency change in different countries?


  The value can rise and fall based on various economic factors
• What happens to the UK currency when it appreciates?


  Prices of UK exports overseas increase and prices of imported goods in the UK fall
• What is the balance of payments?

  Record of money flows between residents and the world
• What are the three main accounts in the balance of payments?

  • Current account
  • Capital account
  • Financial account
• What does the trade balance in goods include?

  Finished goods and raw materials
• What services are included in the trade balance in services?

  Banking, insurance, education, research, shipping
• What does net investment income from overseas assets include?

  Profits, interest, and dividends from investments
• Why is the current account considered important?

  It reflects international competitiveness and living standards
• How can a country's current account be viewed?

  As the country's net income from trade
• What does a surplus in the current account indicate?

  Strong exports or net income
• What do capital transfers involve?

  Change in ownership of fixed assets
• What are non-produced non-financial assets?

  Intangible assets like copyrights and patents
• Why is the financial account important?

  It helps maintain balance of trade equilibrium
• What are economic problems from persistent trade deficits?

  Loss of aggregate demand and slower GDP growth
• How does demand management reduce a trade deficit?

  Reduces consumer spending on imports
• How does a lower exchange rate affect trade?

  Makes exports cheaper and imports more expensive
• What are supply-side improvements aimed at?

  Raising productivity and encouraging exports
• What are protectionist measures?

  Import quotas and large tariffs