Week 4 Balance of payments

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• Leerjaar 4

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• Week 4: Balance of payments

• Basis economic calculus skills

• Percentages

• Equations

• Differentiate

Week 4 Balance of payments

Week 4 Balance of payments

1) You can explain what a balance of payments is.

2) You know what the different components are of the balance of payments, and you can indicate at which component every cashflow belongs.

3) You can explain how a country can achieve a strong competitive position.

1) You can explain what a balance of payments is.

Open economy:

An economy with a high volume of trade with other countries relative to its overall economic activity.

Balance of Payments:

An overview of all financial flows with foreign countries in a given period.

Week 4 Balance of payments

1) You can explain what a balance of payments is.

2) You know what the different components are of the balance of payments, and you can indicate at which component every cashflow belongs.

3) You can explain how a country can achieve a strong competitive position.

2) You know what the different components are of the balance of payments, and you can indicate at which component every cashflow belongs.

Balance of Payments

Current Account: All financial flows related to the export and import of goods, services, factors production, and transfer incomes.

Capital Account: All financial flows related to the export and import of (monetary) capital.

Current account

Capital

account

Trade balance

Import/export factors of production

Transfer incomes

2) You know what the different components are of the balance of payments, and you can indicate at which component every cashflow belongs.

The incoming and outgoing financial flows of a country will rarely be in exact balance.

Foreign Exchange Reserves: A country's stock of foreign currencies.

Uitgaand > ingaand

Outgoing<

Incoming

Outgoing>

Incoming

Surplus balance of payments

Deficit balance of payments

Foreign exchange reserve

Foreign exchange reserve

Week 4 Balance of payments

1) You can explain what a balance of payments is.

2) You know what the different components are of the balance of payments, and you can indicate at which component every cashflow belongs.

3) You can explain what effect a deficit or surplus on the current account of the balance of payments has on production and employment in a country.

3) You can explain how a country can achieve a strong competitive position.

• A country can achieve a strong competitive position through:

  • Low costs for companies. Low taxes and low wages can contribute to this.

  • Low inflation. Prices of products rise little, keeping them affordable for foreign markets.

  • A good investment climate. Sufficient knowledge and infrastructure create favorable conditions for companies to invest and innovate.

  • Stable government policy. A government must be reliable.