MACRO 13
The balance of payments
Export more to Republic of Ireland than Brazil, China, India and Russia
combined.
What causes a balance of payments deficit on the current
account? 15 marks
Exchange rate
If currency is overvalued import will be cheaper and therefore there
will be a higher quantity of imports
Exports will be net uncompetitive and therefore there will be a fall in
the quantity of exports
High levels of domestic economic growth
Increases in demand increases disposable incomes to consume
goods
If domestic producers cannot meet domestic demand consumers
have to import goods from abroad
UK has high marginal propensity to import because it is not good at
producing manufactured goods
If theres fast economic growth there tends to be a big increase in
imports
Low levels of economic growth in foreign markets
If UK’s main trading partners experience negative economic growth
they will buy less of exports
Worsening current account
High costs of production
If costs of production are higher in one country than another then
that means they are going to be less competitive than other nations
in the international market
o E.g. labour costs/ wages
Leads to an increase in imports, fall in exports and current account
deficit
80% of UK is service based
80% of the costs of a service based business is labour
Lack of natural resources
Means a lot of imports are needed for production
The balance of payments
Export more to Republic of Ireland than Brazil, China, India and Russia
combined.
What causes a balance of payments deficit on the current
account? 15 marks
Exchange rate
If currency is overvalued import will be cheaper and therefore there
will be a higher quantity of imports
Exports will be net uncompetitive and therefore there will be a fall in
the quantity of exports
High levels of domestic economic growth
Increases in demand increases disposable incomes to consume
goods
If domestic producers cannot meet domestic demand consumers
have to import goods from abroad
UK has high marginal propensity to import because it is not good at
producing manufactured goods
If theres fast economic growth there tends to be a big increase in
imports
Low levels of economic growth in foreign markets
If UK’s main trading partners experience negative economic growth
they will buy less of exports
Worsening current account
High costs of production
If costs of production are higher in one country than another then
that means they are going to be less competitive than other nations
in the international market
o E.g. labour costs/ wages
Leads to an increase in imports, fall in exports and current account
deficit
80% of UK is service based
80% of the costs of a service based business is labour
Lack of natural resources
Means a lot of imports are needed for production
