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Balance of Payment (TRANSACTION (Current account (1) Records of Goods and…

- - - - Increase in outflow and decrease in inflow of hot money
    - - Domestic investment outflow to emerging economies. MNCs offshored to decrease cost of production.
  - - - a) Due to increase in standard of living, demand for consumer goods increases.
      - b) Rapid industrialization causes increase in imports of capital goods and raw materials
    - - a) Occurs when trade partners undervalue currency
      - b) Increase in demand for imports as imports become relatively cheaper
      - c) Decrease in net exports revenue (X-M)
      - d) Fall in BOP assuming Marshall Lerner Condition holds
    - - a) MNCs outsource
      - b) Decrease in net exports revenue (X-M)
      - c) Fall in current account and BOP
    - - a) Imports are strong substitutes of domestic goods
      - b) Increase in demand for imports result in an increase in import expenditure
      - c) Decrease in net exports revenue (X-M)
      - d) Fall in current acc and BOP
- - - - a) Inflow of FDI, new technology
      - b) More employment opportunities
      - c) Increase in AD and LRAS
      - d) Inflow of hot money
      - e) Increase in funds
      - f) Fall in interest and rise in investment
      - g) Increase in portfolio investment
      - h) Increase in government revenue
    - - a) Expansionary effect on economy
      - b) Increase in (X-M)
      - c) Increase in AD
      - d) Increase in national income by multiplier effect
      - e) Fall in cyclical unemployment
  - - - a) Contractionary effect on economy
      - b) Fall in (X-M)
      - c) Fall in AD
      - d) Fall in national income by multiplier effect
      - e) Rise in cyclical unemployment
    - - a) Outflow of FDI
      - c) Redirect towards lower labour cost countries
      - d) Fall in AD
      - e) Fall in national income by multiplier effect
      - f) Increase in unemployment and decrease in productive capacity
      - g) Outflow of hot money
      - h) Fall in funds
      - i) Rise in interest rate and fall in investment
      - k) Decrease in government revenue
      - j) Outflow of portfolio investment
      - b) Less employment opportunities for domestic economy