Definitions
This records financial transactions made between consumers, businesses and the government in one country with others.
What is the Balance of Payments?
Current Account, Capital Account, Financial Account
What are the three components of the Balance of Payments?
When exports exceed imports.
What is a Current Account Surplus?
Transfers of money where nothing is received in return.
What are current transfers?
Capital Transfers, Non-Financial Asset Transfers
What are the elements of the Capital Account?
Appreciation, Reduced Export Competitiveness and Lower Domestic Consumption and Expenditure
What are the Consequences of a Current Account Surplus?
Foreign currencies purchased to be used by the central bank in its monetary policy.
What are Reserve Assets?
Balance in the Trade of Goods, Balance in the Trade of Services, Income Transfers, Current Transfers
What are the elements of the Current Account?
Expenditure Switching Policies, Expenditure Reducing Policies, Supply-Side Policies
What are methods to resolve a Current Account Deficit?
Includes debt forgiveness, non-life insurance claims and investment grants.
What are Capital Transfers?
Direct Investment, Portfolio Investment, Reserve Assets
What are the elements of the Financial Account?
Depreciation, Increased Interest Rates, Increased Indebtedness
What are the consequences of a Current Account Deficit?
Includes the purchase of or use of natural resources that have not been produced.
What are Non-Financial Asset Transfers?
Debt Forgiveness, Non-Life Insurance Claims and Investment Grants are found in this section of the Balance of Payments.
What is the Capital Account?
This condition states that currency depreciation will only lead to an improvement in the BOP if the sum of demand elasticity for imports and exports is greater than one
What is the Marshall Lerner Condition?