3.5 The Global Economy Balance of Payments GCSE

Transcript:3.5 The Global Economy Balance of Payments GCSE:
3.5 The Global Economy Balance of Payments GCSE Economics 1 Balance of Payments explain the contents of the balance of payments current account and make basic trade calculations; demonstrate understanding of the reasons for a UK current account deficit; evaluate policies that can be used to correct trade imbalances. 2 The balance of payments current account The current account measures flows of money into and out of the country as payments for goods, services, investments and other financial transfers. The 4 main components of the current account are: Trade in goods (visible balance) Trade in services (invisible balance) Investment incomes (also known as primary income) Net transfers (also known as secondary income) 3 Trade in goods (visible balance) Figure 1 -- Top 5 UK exports and import products November 2016 4 Imports £billion Machinery 5.2 Motor vehicles 4.8 Electronic equipment 4.3 Fuels & minerals 3.3 Precious metals 2.9 Exports £billion Machinery 4.1 Motor vehicles 3.9 Electronic equipment 2.4 Medicines 2.2 Precious metals 2.2 Source: ONS Surpluses and deficits A balance is POSITIVE if more money flows IN from abroad than goes OUT to other countries. This is called a SURPLUS. A balance is NEGATIVE if more money goes OUT to other countries than flows IN from abroad. This is called a DEFICIT. Trade in services (invisible balance) e.g. payments for banking, insurance, business services, transport Figure 2 -- UK trade in services 2015 Source: ONS Trade balance This is the balance of trade in both goods and services Trade balance = visible balance + invisible balance Figure 3 – UK trade balance 1995-2015 Source: ONS Investment incomes (sometimes called primary income) the difference between the income received for UK investments overseas and income paid abroad for foreign investments in the UK. e.g. dividends paid to foreigners from the UK, interest and dividends paid to UK residents, money sent back by immigrants to their home countries The balance in investment income has changed from positive to negative in recent years. The UK has traditionally made more from investment abroad than foreign residents take from Britain. This changed after 2010, partly because UK businesses have been less successful abroad. Source: ONS Net transfers (sometimes called secondary income) e.g. EU contributions, development aid for poorer countries The UK usually pays out more than it receives back from abroad Figure 4 – UK Net Transfers 2013-2015 Source: ONS Current balance This is the sum