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Flashcards in Chapter 36 Deck (20)
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1
Q

State the four key ways in which the process of globalisation has been taking place.

A

1) The proportion of output individual economies are trading internationally is growing.
2) Increasing ownership of assets both physical and financial, such as companies or loans and shares in one country by economic actors in another.
3) Increasing migration
4) Technology sharing between countries is faster.

2
Q

What is the balance of payments account?

Name the two components of the balance of payments account.

A

The balance of payments account is a record of all financial dealings over a period of time of economic agents in one country with all other countries.

1) The current account
2) The capital and financial accounts

3
Q

What is the current account?

What are the capital and financial accounts?

A

The current account is where payments for the purchase and sale of goods and services is recorded.
The capital and financial accounts are where flows of money associated with saving, investment, speculation and currency stabilisation are recorded.

4
Q

Name the three main components of the current account on the balance of payments.

A

1) Trade in goods
2) Trade in services
3) Primary and Secondary income

5
Q

To what is trade in goods often referred?

A

Trade in goods is often referred to as trade in visibles, this trade in raw materials, semi-manufactured goods such as car components and finished goods such as cars.

6
Q

What are visible exports?

Explain why they are recorded with a positive sign on the balance of payments account.

A

Visible exports are goods which are sold to foreigners. Goods leave the country whilst payment for theses goods goes in the opposite direction. Hence they result in an inward flow of money and are therefore recorded with a positive sign on the balance of payments account.

7
Q

What are visible imports?

Explain why they are recorded with a negative sign on the balance of payments account?

A

Visible imports are goods bought by native residents from foreigners, goods come into the country while money flows out. Hence they represent an outward flow of cash and are recorded with a minus sign of the balance of payments account.

8
Q

What is the balance of trade?

A

The balance of trade is the difference between the value of visible imports and the value of visible exports.

9
Q

Who are exports of invisibles bought by and give an example.

What are invisible service exports called on the balance of payments account?

A

Exports of invisible are bought by foreigners, for example an American tourist paying for a stay in a London hotel.
Invisible service exports are called export credits in services.

10
Q

What are imports of services to the UK?
Give an example.
What are invisible service imports called on the balance of payments account?

A

Imports of services to the UK are services which are bought from other countries.
For example a UK tourist paying for a holiday in Spain.
Invisible imports are called debits on the balance of payments account.

11
Q

What is primary income?

A

Primary income results from the loan of factors of production abroad.

12
Q

What is secondary income?

What are primary and secondary income examples of?

A

Secondary income is a range of mainly governmental transfers to and from overseas organisations such as the European Union.

Primary and secondary income are examples of invisibles.

13
Q

What is the current balance? (2)

A

1) the current balance is the difference between the value of total imports and exports.
OR
2) It can also be calculated by adding the balance of trade in goods and services, income and current transfers.

14
Q

When does a current account surplus occur?

A

A current account surplus occurs when exports are greater than imports. The monies flowing into the country from trade in goods and services as well as primary and secondary income, are greater than the monies flowing out of the country from these transactions.

15
Q

When does a current account deficit occur?

A

A current account deficit occurs when imports are greater than exports. The monies flowing out of the country from trade in goods and services as well as primary and secondary income are greater than monies into the country from those transactions.

16
Q

What are the four major governmental macroeconomic objectives?

A

1) Low unemployment - achieving full employment.
2) Low and stable inflation - avoiding deflation.
3) Economic growth on a par with similar economies.
4) Balance of payments equilibrium including equilibrium on the current account.

17
Q

What has been the cause of high economic growth in the UK, how is this different from other economies?
What is the effect of this?

A

In the UK, as opposed to being caused by a boom in exports, high economic growth has been caused by increases in consumption, spending or government spending, leading to a rise in aggregate demand.
The rise in consumption and government spending leads to increased demand for imports and a deterioration in the current account on the balance of payments.

18
Q

What tends to happen in the UK during recession?

A

When the economy goes into recession, with aggregate demand falling, the demand for imports and inflation have tended to fall and unemployment rises. The current account on the balance of payments tends to improve.

19
Q

Why do governments prefer export-led growth?

What is the drawback of this?

A

Economic growth due to a rise in exports would reduce unemployment and improve current account balance on the balance of payments. However this may lead to higher inflation.

20
Q

What are the two main causes of a current account deficit?

A

1) Government spending, where the government has borrowed money from abroad.
2) Private firms and consumers buying too many imports and borrowing money from abroad to pay for them.