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The balance of payments of current account: The account refers to trades…
The balance of payments of current account: The account refers to trades of goods and services between one countries and other countries.
4 Conditions: Trade in goods, trade in services, investment income, current transfers.
Usual causes of surplus: reputation, quality of goods, rapidly developing, reliability, innovation, labour advantages.
Trade in goods
Visible trade is imports or exports which are tangible, touch and see as they cross international borders.
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The Uk exports goods cheaper than manufacturing goods, we specialise in services such as banking and enterprise. Our manufacturing sector has shrunk and would never be able to compete with higher economies due to the large gap and inefficiencies, deindustrialization, due to globalisation, high wage costs, people choose not to manufacture here due to the high costs consumers therefore benefit.
To attempt to catch up we should invest in technology and research to develop our manufacturing processes, research and development are key to succeed , we are less competitive in basic goods. This effects us as exports are injections which will boost our national income, also the level of employment and available jobs due to unemployment (regional and sectional) large regional income gap.
Trade in services
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financial services, banking, tourism, insurance and civil aviation.
Britain is developed in services as we have education, skills and enterprise. but we don't have a healthy balance as we lack manufacturing developments.
Investment income
Earnings made abroad minus income flowing abroad from foreign investments in the UK. Most is developed from interest, profits and dividends on assets owned abroad. Banks giving loans to foreign nations, buying shares in foreign companies and uk businesses setting up abroad which will generate future income.
Current transfers
Private transfers are transfers between individuals e.g. money sent home to families from Britons working overseas.
Government transfers include: grants to overseas countries, contributions to international organisations, e.g. international monetary fund, maintenance of troops abroad and embassies and consulates.
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Uk could fund its own account deficit is capital flows of finance are inwards paying for the deficit, or investments in capital. But it could indicate the country is weak and not competitive, inefficient, it could lead to withdraws/leakages from circular flow of income which will lead to less output and low employment, frictional unemployment.