Unit 4.6 - Balance of Payments
What you need to know and understand:
Key concepts:
Concepts to understand:
- Balance of payments
- Credit and debit items
- Surplus or deficit on an account
- Components of the balance of payments
- Current account
- Balance of trade in goods
- Balance of trade in services
- Income
- Current transfers
- Capital Account
- Capital transfers
- Transaction in non-produced, non-financial assets
- Financial account
- Foreign direct investment (FDI)
- Portfolio investment
- Reserve assets
- Official borrowing
- Current account
- Interdependence between the accounts
- Zero balance in the balance of payments
- Credits matched by debits
- Deficits matched by surpluses
- Relationship between the current account and the exchange rate [HL only]
- Relationship between the financial account and the exchange rate [HL only]
- Implications of a persistent current account deficit in terms of: [HL only]
- exchange rates
- interest rates
- foreign ownership of domestic assets
- debt
- credit ratings
- demand management
- economic growth
- Methods to correct a persistent current account deficit [HL only]
- Expenditure switching
- Expenditure reducing
- Supply-side policies
- Effectiveness of measures to correct a persistent current account deficit [HL only].
- The Marshall-Lerner condition and the J-curve effect [HL only]
- Implications of a persistent current account surplus in terms of [HL only] :
- domestic consumption and investment
- exchange rates
- inflation
- employment
- export competitiveness
Key concepts:
- Scarcity
- Choice
- Efficiency
- Equity
- Economic well-being
- Sustainability
- Change
- Interdependence
- Intervention
Concepts to understand:
- The increased interdependence of economies has benefits and costs.
- Increased economic integration may result in efficiency, welfare gains and improvements in economic well-being but the benefits may not result in equity.