Macroeconomic notes A level, Summaries of Economics

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Consequences of Big Surpluses and Deficits Causes of Surpluses and Deficits Cures for Surpluses and Deficits What is The Balance of Payments

Learning outcomes Balance of Payments What we want to know after these next 3 lessons this week From Lesson 1

• (^) Knowledge and Application 1 What causes goods and services to move towards a deficit position 2 What causes Primary and secondary income to move towards a deficit position 3 What causes goods and services to move towards a surplus position 4 What causes Primary and secondary income to move towards a surplus position

CURRENT ACCOUNT -CAUSE, CURES

CONSEQUENCES AND THREE EXAMPLES OF

GLOBAL IMBALANCES

Cause

s

Deficit

Surplu

s

Consequenc

es

Cures

Todays lesson

Goods and.

Services

Primary

Income

Secondary

Income

Possible Causes of Deficits in Possible Cause of Surpluses in Current Account is made up of

1 Causes of Current Account Deficits and Surpluses There are 4 Parameters to look at; which are

• Goods and Services
• Primary Income
• (^) Secondary Income

1a Causes of Current Account Deficits There are 4 Parameters to look at; which are

• Goods and Services
• Primary Income
• (^) Secondary Income

1a Causes of Deficits ( focus upon the goods and

services component)

1 Our Domestic Economy position

• (^) Our Exports are too expensive
• (^) Our Imports are too cheap
• (^) A large Positive output gap

1. Others countries Economic position
2. Our trading relationship with other countries Causes of a Current Account Deficit 1 Domestic inflation high - goods and services are relatively expensive compared to imports. 2 Relatively high value of the country’s currency. 3 Rapid economic growth in our country could result in increased imports of brand name or luxury imports from other countries 4 Poor Non-price factors such as poor quality and design can also cause a deficit. 5 A recession or war in one of our main markets 6 They place tariffs on our goods 7 They are industrialising we import their goods

Current Account Deficit caused by other things (the

focus now upon Primary Income and Secondary

Income)

Primary Income Secondary Income

Current Account Deficit caused by Primary Income and Secondary Income)

Primary Income

• (^) There may be a lot of Inward Investment in our country and profits may be returned to their owners in other countries eg US investment in Mexico
• (^) We may be a tax haven and there is a lot of Corporate savings that leads to a lot of interest and dividend payments leaving the country eg Bermuda
• (^) We may be a big tourist country and lots of foreigners own property in this country that is rented leading to money leaving the country eg Brits owning property in Spain

Secondary Income

We may be a rich country and therefore contribute a lot to International organisations and give Foreign Aid to poor countries eg 0.7% UK GDP is given in Aid. There may be a lot of migrant labour that are sending income back to their families in other countries eg Polish workers in the UK. Overview There are 5 reasons here for a country having a current account Deficit

CURRENT ACCOUNT -CAUSE, CURES

CONSEQUENCES AND THREE EXAMPLES OF

GLOBAL IMBALANCES

Causes

Surplus

es

Consequenc

es

Cures

Next we move onto Surpluses

1b Causes of Current Account Surpluses There are 4 Parameters to look at; which are

• Goods and Services
• Primary Income
• (^) Secondary Income

1b Causes of Surpluses ( with focus upon the goods

and services component)

1 Our Domestic Economy position

• (^) Our Exports are cheap
• (^) Our Imports are too expensive
• (^) We may be in Recession 2 Others countries Economic position 3 Our Trading relationship with other countries Can Cause us a Current Account Surplus

1b Current Account Surplus caused by other things

(the focus now upon Primary Income and Secondary

Income)

Primary Income Secondary Income

1b Current Account Surplus caused by other things

(focus upon Primary Income and Secondary Income)

Explain the detail in groups. Some clues to start

Primary Income

• (^) We Invest a lot in other countries eg USA does
• (^) Tax Rates are very high in our country. Too high! Eg Sweden
• (^) We may be a rich, cold country and like having a holiday home somewhere warm eg Norway

Secondary Income

We may be a poor country and therefore receive a lot of We are a poor country and lots of our workers work overseas eg Moldova