Economics - International Trade Part 3

How can a balance of payments deficit be reduced?

A balance of payments deficit can be reduced by reducing aggregate demand through deflationary monetary and fiscal policy, implementing import controls such as embargos, quotas, and tariffs, and devaluation of the currency.

How can a balance of payments surplus be reduced?

A balance of payments surplus can be reduced by reducing funds flowing into the economy or increasing funds flowing out of the economy.

What is a balance of payments surplus?

A balance of payments surplus occurs when inflows are greater than outflows. This means the country is receiving more income from abroad than it is making payments.

What do transfers include in the current account?

Transfers include gifts from private individuals and government grants.

What happens when the balance of payments is in equilibrium?

When the balance of payments is in equilibrium, it means that inflows are equal to outflows.

What are inflows and outflows in the balance of payments?

When there are foreign exchange flows into the country, these are called inflows or receipts. When there are foreign exchange flows out of the country, these are called outflows or payments.

What is the balance of payments?

a summary of the payments and receipts of transactions between a country and the rest of the world for a given period, usually one year.

What are some reasons for a balance of payments surplus?

falling demand for imported goods and services, increasing demand by foreigners for locally produced goods and services, a decrease in holidays taken abroad, an increase in foreign visitors to the country, individual and governmental transfers into the country being greater than transfers out

What are some reasons for a balance of payments deficit?

increasing demand for imported goods and services, falling demand for locally produced goods and services by foreigners, an increase in holidays taken abroad, a decrease in visitors to the country, individual and governmental transfers out of the country being greater than those coming in,

What are the three subsections or smaller accounts that make up the balance of payments?

the current account, the capital account, and the official reserves account.

What happens in a balance of payments deficit?

In a balance of payments deficit, outflows are greater than inflows.

What happens in a balance of payments surplus?

In a balance of payments surplus, inflows are greater than outflows.

What does the capital account record in the balance of payments?

The capital account records investment by the residents/domestic firms of the country in other countries and the investment made in the country by foreigners.

What are the consequences of a balance of payments deficit?

The consequences of a balance of payments deficit are unemployment might increase, falling foreign exchange reserves, and exchange rate depreciation.

What are the consequences of a balance of payments surplus?

The consequences of a balance of payments surplus are falling unemployment, increase in reserves, exchange rate appreciation, and inflationary pressures.

What does the current account record in the balance of payments?

The current account records trade in goods, trade in services, transfers to and from private individuals and government, and flows of income from investments.

What is the official reserves account in the balance of payments?

The official reserves account shows the effect of the flows of payments over the year on the official reserves of the country.

What does the services balance record in the current account?

The services balance records the export of services minus the import of services.