Consequences of
Surpluses and
Deficits
Causes of Surpluses and
Deficits
Cures for
Surpluses
and Deficits
What is The
Balance of
Payments
Two
Lesso
ns
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In depth look at macroeconomic objectives
Typology: Summaries
2025/2026
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Consequences of Surpluses and Deficits Causes of Surpluses and Deficits Cures for Surpluses and Deficits What is The Balance of Payments Two Lesso ns
Learning outcomes Balance of Payments What we want to know after these 2 lessons From Lesson 1
- (^) Knowledge and Application 1 What are the 4 parts of the Current Account of the BofP? 2 Are these parts generally in Surplus or Deficit for the UK 3 What are the 4 types of overseas assets that we can hold (this is the Financial Account)
The Current Account of the Balance of Payments A Reminder
The Current Account : 4 components Goods Trade in Goods Services Trade in Services Net Investment Income
- Primary Income Net transfers- Secondary Income Examples Examples Examples Examples
- (^) Jet engines
- (^) Cars
- (^) Chemicals
- (^) Gas Turbines
- (^) Oil
- (^) Whiskey
- (^) Pharmaceuticals
- (^) Banking
- (^) Consultancy
- (^) Accountancy
- (^) Architectural services
- (^) Legal services
- (^) Advertising
- (^) Tourism
- (^) Interest, Profits and Dividends from UK assets owned abroad versus
- (^) Interest, Profits and Dividends from assets owned by foreigners in the UK
- (^) Payments to international organisations such as the UN, IMF, World Bank and EU
- (^) Foreign aid
- (^) Workers’ remittances
The Current Account
Number 1
- (^) Exports of goods
- (^) Imports of goods Balance of trade in goods Number 2
- (^) Exports of services
- (^) Imports of services Balance of trade in services Total trade balance Number 3 + (^) Income earned on foreign assets that the UK owns - (^) Income earned by foreigners on assets that they own in the UK Net Primary income Number 4 + (^) Transfers received from abroad - (^) Transfers sent abroad Net Secondary income Current account balance The UK’s current account has four components.
UK Current Account £m
- 20000 70000 120000 Trade in Goods Trade in Services Primary Income Secondary Income Current Account balance
What does the Financial Account include? The buying or selling of Assets in another country Financial Account Money moves from one country to another for investment or savings reasons Reason(One off money movement)
- (^) To buy overseas shares
- (^) To be saved in a foreign bank
- (^) To buy a foreign firm
- (^) To buy overseas property
What does the Financial Account include? Financial Account Money moves from one country to another for investment or savings reasons Reason(One off money movement)
- (^) To buy overseas shares
- (^) To be saved in a foreign bank
- (^) To buy a foreign firm
- (^) To buy overseas property The return on this will be paid to the owner of the asset in his own country
- (^) Return(Paid regularly)
This then affects Primary Income Financial Account Money moves from one country to another for investment or savings reasons Reason(One off money movement)
- (^) To buy overseas shares
- (^) To be saved in a foreign bank
- (^) To buy a foreign firm
- (^) To buy overseas property The Financial Account therefore affects the Current Account Net Primary Income The return on this will be paid to the owner of the asset in his own country Return(Paid regularly)
- (^) Dividends paid
- (^) Interest paid
- (^) Profit paid
- (^) Rent paid The return will flow in the opposite direction to the LHS
Current Account
- (^) Exports of goods
- (^) Imports of goods Balance of trade in goods
- (^) Exports of services
- (^) Imports of services
- (^) Balance of trade in services Net income inflows from interest ,profits, dividends Net Primary Income Net international transfer payments. (EU contbn, aid etc) overseas remittances Net secondary income = Current Account Financial Account
- Investment/saving inflows
- (^) Investment/saving outflows. = Current plus Financial Account Balance
- (^) Say a Surplus of £100 –this pushes the currency up and makes exports less competitive and imports more competitive therefore reducing the surplus until it equals zero.
- (^) The currency is floating and the Bof P will move to zero The Balance of Payments is measured as follows: If we have a Current plus Financial Account Surplus
Current Account
- (^) Exports of goods
- (^) Imports of goods Balance of trade in goods
- (^) Exports of services
- (^) Imports of services
- (^) Balance of trade in services Net income inflows from interest ,profits, dividends Net Primary Income Net international transfer payments. (EU contbn, aid etc) overseas remittances Net secondary income = Current Account Financial Account
- Investment/saving inflows
- (^) Investment/saving outflows. = Current plus Financial Account Balance
- (^) Say a Deficit of £100 –this pushes the currency down and makes exports more competitive and imports less competitive therefore reducing the deficit until it equals zero.
- (^) The currency is floating and the Bof P will move to zero The Balance of Payments is measured as follows: If we have a Current plus Financial Account Deficit
Learning outcomes -Balance of Payments What we want to know after these 2 lessons From Lesson 2
- (^) Analysis and Evaluation
- (^) 1What does the Central Bank need to do with these weapons to stop the currency falling
- (^) 2What does the Central Bank need to do with these weapons to stop the currency rising
- (^) 3 Why should the Balancing item eventually equal zero
- (^) 4 How the Bof P in total should equal zero
The Role of Central Banks