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THE BALANCE OF PAYMENTS
STRUCTURE OF THE BALANCE OF PAYMENTS
CURRENT CAPITAL ACCOUNT FINANCIAL ACCOUNT
Trade in goods and Transfers SR Capital Flows
services. Transfer of money into Speculation, Hot Money this is money that
Investment Income and out of the UK. regularly flows between financial markets,
Income generated by looking for the highest short term interest
UK firms, from UK rates possible (e.g. George Soros, Rogue
investment in other Trader).
countries. LR Capital Flows
The importance of exports:
UK is a highly open economy
general reputation, the EU,
Export earnings are an
injection of AD
Exports help to stimulate
economic growth. The UK is the
2nd largest service exporter
(behind the US).
Employment effects from exports
Could affect suppliers and manufacturers.
Regional economy and exports
Helps to reduce structural unemployment.
THE UK'S CURRENT ACCOUNT RECORD
DEMAND SIDE CAUSES SUPPLY SIDE CAUSES
Strong GDP Growth. Low productivity.
Greater demand firms earn more money a Less competitive research and
need to import more to produce output. development gap.
High productivity in other countries.
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Increase in UK income, and greater availability E.g. China.
of credit. Insufficient capacity from British producers.
A higher disposable income more imports.
TRADE DEFICIT IS A PROBLEM FOR ECONOMY TRADE DEFICIT IS NOT A PROBLEM FOR ECONOMY
It can put serious pressure on a The UK usually ends up relying on foreign
country's currency.…read more