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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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MEASURE OF ECONOMIC PERFORMANCE iv.) THE BALANCE OF PAYMENTS
→ 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 & FINANICAL ACCOUNTS Records:

• Capital Transfers

• Activities of MNCs

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

Calculation:

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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