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Balance Of Payments Notes

This is a sample of our (approximately) 4 page long Balance Of Payments notes, which we sell as part of the Macroeconomics Notes collection, a A package written at Wallington High School For Girls in 2011 that contains (approximately) 18 pages of notes across 5 different documents.

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Balance Of Payments Revision

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→ UK's B of P continues to drop A set of accounts that record economic transactions between the UK and the rest of the world (R.O.W) in a given time period. Includes a series of sub totals/ balances between inward and outward transactions. It produces an overall net flow of transactions and shows how the flow is funded. (Source ONS Website) Possible Confusion:
→ The balance of payments deficits/ surpluses are often confused with the government budget deficits/ surpluses.
→ The balance of payments involves all sectors of the UK economy - households, firms and government.
→ The government budget is primarily the concern of government.

*The balance of payments must ALWAYS balance!
CURRENT ACCOUNT Records net values of:

• Exports + Imports

• Income earned on overseas assets

• International Transfers of Funds by individuals & governments


• Capital Transfers

• Activities of MNCs

• Funds put in/ taken out of National Stock and Money Markets


Based on data from HM Revenue and Customs for trade in goods and ONS surveys for trade in surveys. Data published monthly, quarterly and annually.

Causes: Possible Causes of Deficit on the UK's current account of the B.O.P:

Short - term factors include:

1. Increase in National Income (Y) → sustained growth in household and business spending which the domestic economy cannot fully satisfy (high Marginal Propensity to Import [*mpm
= measure of an economy's tendency to buy foreign goods]).
→ Associated with boom stage of the UK business cycle.

2. A decrease in incomes abroad associated with recession/ slump of the global business cycle.

3. A higher UK inflation rate than competitor nations.

4. A strengthening of Sterling's exchange rate.

Longer - term factors include:

1. A UK productivity gap in tradable sectors → measure of efficiency not output

2. A lack of competitiveness based on non - price factors

3. Insufficient Research & Development (R&D) → from retained profits

Long - term factors include:

1. Changing structure of the UK and global economy (see comparative advantage)

Consequences: REMEMBER to put the deficit or surplus into context:

• Size of deficit - compared to GDP, is it significant?

• Causes - how easily can it be addressed?

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