Balance of Payments

• what 4 things can affect the Balance of Payments

  -exchange rates

  -productivity

  -relative growth

  -relative inflation
• how does the exchange rates affect the balance of payments

  stronger pound - BOP deteriorates

  weaker pound -BOP strengthens
• how do productivity levels alter the BOP

  If the Uk is not as competitive as rival nations domestic firms costs may rise reducing their international competitiveness
• how do growth rates affect the BOP

  -during booms people increase spending including on imports

  -growth in export markets will improve the BOP

  -growth only matters in relation to foreign growth
• how does inflation affect the BOP

  higher domestic inflation rates leads to a loss of international competitiveness harming the balance of payments
• what is the balance of payments

  looks at the relationship of money flowing in and out of the economy
• what are the3 parts to the balance of payments

  current accounts

  financial accounts

  capital accounts
• what is the visible balance

  goods exported - goods imported (UK defcit)
• what is the invisible balance

  services exported - services imported (UK surplus)
• what is the balance of trade 


  visible balance + invisible balance (UK deficit)
• what is the primary balance

  profits from overseas - profits leaving
• what is the secondary balance

  inflows with no trade -outflows with no trade (Often Aid)
• what is the formula for the balance of payments

  balance of trade + primary balance + secondary balance