BOP

Question 1

BOP definition

Answer 1

Records all financial transactions made between consumers, businesses and the government in one country with other nations

Question 2

Current Account

Answer 2

Measures the difference between between money and credit going in and out of an economy

Question 3

What is the Current Account comprised of?

Answer 3

• Trade Balance in Good
• Trade Balance in Services
• Net primary income from oversea assets
• Net Secondary income (debt relief)

Question 4

Current Account deficit

Answer 4

• external deficit
• net outflow of income from the country’s circular flow
• debtor countries

Question 5

Current Account surplus

Answer 5

• external surplus
• net inflow of income
• creditor nations

Question 6

Causes of current account deficit

Answer 6

• Poor price + non-price competitiveness (e.g. higher relative inflation than a nation’s trading partners)
• Strong exchange rate affect exports + imports (increases the prices of exports)
• Recession in one or more trade partner countries (cuts value of exported G + S)
• Volatile global prices (exporters of primary commodities)
• Booming domestic economy (domestic producers need to import more)