BALANCE OF PAYMENTS
The Balance of Payments is Unit 2.6.3 of the specification and is part of Unit 6: The
international economy; this is taught in Year 13
However, an improving balance of payments on current account is one of the
government’s four principal macroeconomic objectives.
The largest proportion of the current account is international trade, i.e. exports and
imports of goods and services. Net exports (X-M) is part of aggregate demand.
Consequently a brief introduction to the current account is provided at this point of
the course.
Definitions
Definitions: The balance of payments is the record of the value of all transactions
coming into and going out of a country.
The total balance of payments is always zero.
A deficit or surplus on the current and capital accounts is offset with an equal
amount on the financial and capital accounts combined.
o The current account (important)
o The capital account (not important)
o The financial account (important)
Balance of payments=0
The total balance of payments is always zero.
A deficit or surplus on the current and capital accounts is offset with an equal
amount on the financial and capital accounts combined.
o The current account (important)
o The capital account (not important)
o The financial account (important)
UK Balance of Payments
The deficit on the UK current account is matched by corresponding amount on the
combined capital and financial accounts.
, The current account
The balance of payments on current account comprises four components:
1. Trade in goods
2. Trade in services
3. Primary income
4. Secondary income
UK current account 2019
Trade represents the largest influence on the current account, with the deficit on
goods greater than the surplus on services
Trade position is
negative
Primary and
secondary
income are in
deficit
Trade has a key role in the current account
Trade is the most significant part of the
current account. Exports take a similar
share of inflows as imports do of
outflows.
Trade is part of aggregate demand:
C+I+G+(X-M) but primary and secondary
income are not part of aggregate
demand.
Trade in goods
The trade in goods is often called visible
trade because it comprises tangible
goods
In general, three types of goods are
traded between countries
Remember that all types of goods are
produced and sold by firms
Type of goods Examples Bought by
The Balance of Payments is Unit 2.6.3 of the specification and is part of Unit 6: The
international economy; this is taught in Year 13
However, an improving balance of payments on current account is one of the
government’s four principal macroeconomic objectives.
The largest proportion of the current account is international trade, i.e. exports and
imports of goods and services. Net exports (X-M) is part of aggregate demand.
Consequently a brief introduction to the current account is provided at this point of
the course.
Definitions
Definitions: The balance of payments is the record of the value of all transactions
coming into and going out of a country.
The total balance of payments is always zero.
A deficit or surplus on the current and capital accounts is offset with an equal
amount on the financial and capital accounts combined.
o The current account (important)
o The capital account (not important)
o The financial account (important)
Balance of payments=0
The total balance of payments is always zero.
A deficit or surplus on the current and capital accounts is offset with an equal
amount on the financial and capital accounts combined.
o The current account (important)
o The capital account (not important)
o The financial account (important)
UK Balance of Payments
The deficit on the UK current account is matched by corresponding amount on the
combined capital and financial accounts.
, The current account
The balance of payments on current account comprises four components:
1. Trade in goods
2. Trade in services
3. Primary income
4. Secondary income
UK current account 2019
Trade represents the largest influence on the current account, with the deficit on
goods greater than the surplus on services
Trade position is
negative
Primary and
secondary
income are in
deficit
Trade has a key role in the current account
Trade is the most significant part of the
current account. Exports take a similar
share of inflows as imports do of
outflows.
Trade is part of aggregate demand:
C+I+G+(X-M) but primary and secondary
income are not part of aggregate
demand.
Trade in goods
The trade in goods is often called visible
trade because it comprises tangible
goods
In general, three types of goods are
traded between countries
Remember that all types of goods are
produced and sold by firms
Type of goods Examples Bought by
