Chapter 17 - The Balance of Payments on Current Account

Chapter 17 of the AQA Economics text book (Nelson Thornes)

  • Created by: Nathan S
  • Created on: 05-04-13 12:20
What are the 4 parts to the current account? (P192)
Trade in goods, Trade in Services, Investment income, Current Transfers.
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What are 'Visibles' and 'Invisibles'? (P193)
Visibles are imports or exports that are tangible. Invisibles are intangible.
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What is the 'Balance of Trade'? (P193)
'Balance of Trade = Visible exports - Visible imports', (Only the trade in goods, not anything else on the current account).
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What is deindustrialisation? (P194)
This is where there is a fall in the proportion of national output. The UK experienced this due to 'globalisation' (the ability to produce goods anywhere in the world and sell them anywhere), as it is cheaper to import than to manufacture ourselves.
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What is 'Trade in Services' (P196)
This is the part of the current account that covers imports and exports in services. The UK, and other develpoed countires, normally have a surplus here, as they have service based economies.
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What is 'Investment Income'? (P196)
This is the earnings made from investments overseas (e.g. buying shares in foreign companies) minus income flowing abroad from foreign investment in the UK (e.g. foreign companies setting up in the UK).
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What is 'Transfers'? (P198)
This measures transfers of money between countries. This includes private (individuals) and government transfers.
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What can affect a countries current account? (P199)
Changes in currency value. Changes in 'AD' (a rise in UK national income will mean a higher amount is spent on imports). Inflation (high inflation will lose competitiveness, so less exports and more imports). Labour productivity. Innovation.
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Why do some economist argue that a current account deficit is fine? (P200)
It will be self-correcting if it due to the position in the economic cycle. Some of the deficit may be down to imports of capital equipment, which will increase productivity in the long run.
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Why do some economist argue that a current account deficit isn't fine? (P201)
It may indicate that the UK has lost International competitiveness. Continuous withdrawals (imports) from the circular flow will lead to reduced output and high unemployment. The UK needs a growing export market in order to maintain full employment.
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Other cards in this set

Card 2

Front

What are 'Visibles' and 'Invisibles'? (P193)

Back

Visibles are imports or exports that are tangible. Invisibles are intangible.

Card 3

Front

What is the 'Balance of Trade'? (P193)

Back

Preview of the front of card 3

Card 4

Front

What is deindustrialisation? (P194)

Back

Preview of the front of card 4

Card 5

Front

What is 'Trade in Services' (P196)

Back

Preview of the front of card 5
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