Bob recap

Balance of Payments (recap) =a record of payments between one country and the rest of the world The Current Account of the BOP records transactions that are income for the recipient, rather than investments or loans ,[object Object],[object Object],[object Object],[object Object],[object Object]

Surplus / Deficit ,[object Object],[object Object],On its own, a BOP deficit on current account is not a problem for an economy as long as it can be funded, but it becomes a problem as reserves of foreign currencies begin to run low. It might mean that the currency falls in value, which is inflationary. Why does this happen? It might be a sign that the country is becoming uncompetitive – Explain . And might in the long run mean that a painful readjustment, such as tax increases, is required to stop people overspending.

Causes and Costs of an Imbalance Common Exam Error – when interest rates rise ‘hot money’ enters the country – this does not affect the Current Account Balance as this part of the accounts only record incomes. When interest rates rise the exchange rate usually rises as well – this makes us less competitive…. X-M change. ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Costs Causes

Balance of Payments 12 Balance of Payment and BOP Theory 11 Understanding the Current Account Understanding the Capital Account Read Wiki on BoP and take notes – and use the link to the financial crisis of 2007-2010

Bob recap

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