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Balance of Payments (Correcting a Deficit (Expenditure-reducing policies…
Balance of Payments
Correcting a Deficit
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Expenditure-reducing policies (reduce overall consumer expenditure, so shifting AD to the left)
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The current Account
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Income
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Money flows may relate to the payments of: profit, interest and dividends.
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Financial Account
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If foreign purchases of domestic financial assets increases faster than domestic ownership of foreign financial assets there will be more money coming into a country and vice-versa
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The Current Balance
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It can be calculated by adding the balance of trade in goods with that of services, income and current transfers
Capital Account
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It has two components:
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Non produced, non-financial assets: including the sales of intangible assets , such as patents and copyrights
Exchange Rate
A deficit in the current account may result in a downward pressure in the exchange rate of a currency
This suggests there is an excess of the currency on the foreign exchange markets as consumers are buying more imports or foreigners are purchasing fewer exports
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