gcse economics - international trade - balance of payments
The purpose of the balance of payments is to record of all financial dealings with foreigners
CURRENT ACCOUNT
The part of the balance of payments accounts where the value of exports and imports is recorded.
WHAT THE CURRENT ACCOUNT MIGHT LOOK LIKE
UK’s CURRENT ACCOUNT 2002
£billion
VISIBLE EXPORTS 700
VISIBLE IMPORTS 800
BALANCE OF TRADE - 100
INVISIBLE EXPORTS 300
INVISIBLE IMPORTS 100
INVISIBLE BALANCE + 200
TOTAL EXPORTS 1000
TOTAL IMPORTS 900
CURRENT BALANCE +100
In this case the UK is importing more goods (visibles) than it is exporting. However, it is exporting more services (invisibles) than it is importing. Overall, the positive invisible balance outweighs the negative balance of trade and the UK has a healthy, positive current balance.
WHY COULD THE UK HAVE A DEFICIT (-) ON ITS GOODS BALANCE?
- Decline in manufacturing therefore fewer goods to export
- Lots of imports of goods from abroad
- Cheaper to import
- High exchange rate £. This makes it more difficult to export but
easier to import
- Loss of comparative advantage in many goods
- A boom in the UK means that consumers and businesses have more money to
spend on imports.
ACTION
| Exports | Imports |
|
Visible |
104 | 114 |
Invisible |
117 | 114 |
Calculate a) balance of trade b) invisible balance c) current balance
D Try to explain each of the 6 points which could cause the UK to have a deficit on its trade in goods.
These GCSE Economics revision notes have been kindly provided by Peter Davies of Mill Hill School, Ripley Keep Up-todate with your GCSE Economics - Subscribe Free to Economics in the News by Email
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