AL 11.1 The Balance of Payments

What is the balance of payments?

• The value of imported and exported goods
• Accounts showing the record of all imports and exports
• A record of an economys international financial transactions
• (X-M)

The balance of payments includes...

• Current account and capital account
• Current account, capital account and trade account
• Trade account, credit account and capital account
• Current account, financial account and capital account

The implications of a current deficit are...

• Government must borrow money
• Consumers will buy more imports
• The economy must borrow and sell assets
• Banks must sell assets

The UK Current Account has, for the majority of the last 17 years...

• Been in surplus
• Been in deficit
• Stayed the same
• Balance with the capital account

Why does the balance of payments "balance"?

• Exports equals imports
• The current account equals the financial account
• The capital account equals imports and exports
• The current account equals the financial and capital account

Trade in "Consumer goods" can also be called...

• Commodities trade
• Intangible trade
• Capital trade
• Visible trade

The financial account records...

• Flows of money relating to financial assets
• Flows of money relating to borrowing
• Flows of money relating to foreign currency exchange
• Flows of money relating to speculation

The capital account...

• Records sales and purchases of capital goods
• Records transfers, sale/purchases of all capital assets
• Records sale/purchases of businesses
• Records all transactions of tangible capital assets

Running a current account surplus could cause...

• A fall in aggregate demand
• The economy to borrow and sell assets
• Unemployment to rise
• The exchange rate to appreciate

All of the following could help solve a current account deficit, EXCEPT...

• Lowering interest rates
• Putting tariffs on imported goods
• Depreciating the exchange rate
• Improving the competitiveness of exports