Macro 4- Balance of payments

• Balance of payments Record of all payments between a country and other economies over a given period of time
• Current account Flows of income from trade, the use of FOP and other transfers between countries
• 4 components of the current account

  Trade in goods

  Trade in services

  Primary income

  Secondary income
• Trade in services

  Exports and imports of services

  Uk runs surplus

  invisible trade
• Primary income Net investment flows earned by the UK Investment income- investment income paid abroad
• Secondary income

  Transfer of money between countries Private transfer, foreign aid, grants, gifts
• Financial account Measures flow of financial captial into and out of the country
• Different components of the financial account

  FDI

  Net portfolio investment
• FDI Opening or buying into an exisiting business outside the UK
• Net portfolio investment

  Flow of money into the UK - flow of money leaving UK in terms of business assets
• Captial account Captial transfers Purchase and sales of non financial assets
• Factors determining exports Foreign exports Productivity Inflation
• Demand side causes of current account surplus/defecit High income abroad Low domestic income Weak exchange rate (WIDEC)
• Supply side causes for current account surplus/defecit Low relative inflation Producitivity
• Consequence of a trade surplus on current account (vice versa) Increased exports, Increased AD, Increased G, Fall in UE, Increased inflation Appreciation of exchange rate, Increased D for X
• Trade in goods

  Exports and imports of goods

  UK-large deficit

  Visible trade