4.2 Balance of payments

• What are imports in the balance of payments?

  Goods and services sold abroad
• What are exports in the balance of payments?

  Goods and services bought from abroad
• What are the positive and negative aspects of the balance of payments?

  Positive:

  • Word incomes or income is exports
  • Records glare of money in

  
  

  Negative:

  • Words, outgoes or income as imports
  • Records glare of money out
• What does the current account in the balance of payments represent?

  Trade balance of goods, services, and income flows
• What are the components of trade in goods and services?

  Trade in Goods:

  • Balance of earnings from exports
  • Spending on imports of tangible goods

  
  

  Trade in Services:

  • Balance of earnings from exports
  • Spending on imports of services
• What are income flows in the balance of payments?

  Earnings from abroad like interest on investments
• What do transfers in the balance of payments represent?

  Passage of money or goods without payment
• What is the difference between a deficit and a surplus in the balance of payments?


  Deficit:

  • Consuming more than producing

  
  

  Surplus:

  • Consuming less than producing
• How is net trade calculated?

  By adding all four sums together
• What does a deficit indicate about a country's economy?

  It consumes more than it produces
• What does a surplus indicate about a country's economy?

  It consumes less than it produces
• What is the balance of payments?

  Record of all financial transactions
• What does the balance of payments record?

  All financial transactions between countries
• How does the balance of payments relate to a country's economy?

  It reflects economic interactions with the world
• How is the flow of money between countries measured?

  Through balanced, deficit, or surplus
• What does a balanced current account indicate?

  • Revenue from overseas equals spending overseas
• What defines a current account surplus?

  • Exports and inflow > Imports and outflow
• What defines a current account deficit?

  • Exports and inflow < Imports and outflow
• What should be analyzed regarding the trade balance since 1996?

  • Trade in goods
  • Trade in services
  • Overall trade balance
• What is the relationship between trade in goods and trade in services?

  They impact the overall trade balance
• Why is the UK importing more than it exports?

  Due to consumer goods, oil, and gas
• Why have exports to the EU fallen?

  Weakening economies and falling Euro
• What is the balance of payments?

  • Record of all financial transactions
  • Money flows in and out of a country
• What does the current account record?

  • Balance in trade of goods and services
  • Income flows and transfers
• What is the formula for the trade balance?

  Trade balance = exports - imports
• If Country A has exports of $700$ and imports of $800$, what is the balance of trade in goods?


  -100
• If Country A has exports of services of $300$ and imports of services of $100$, what is the balance of trade in services?


  +200
• What is the balance of trade in goods?

  • Value of goods sold abroad minus
  • Value of goods purchased from abroad
• What is the balance of trade in services?

  • Value of services sold abroad minus
  • Value of services purchased from abroad
• What do income flows include?

  Earnings on investments abroad
• If Country B has exports of goods of $500$ and imports of goods of $900$, what is the balance of trade in goods?


  -400
• If Country B has exports of services of $400$ and imports of services of $100$, what is the balance of trade in services?


  +300
• What do transfers capture in the balance of payments?

  Transfers between countries
• If Country C has exports of goods of $200$ and imports of goods of $400$, what is the balance of trade in goods?


  -200
• If Country C has exports of services of $700$ and imports of services of $200$, what is the balance of trade in services?


  +500
• What is the typical exam style question regarding balance of payments?

  • Analyze the data provided
  • Refer to relevant information