Summary - Unit 4 ECON4 - Economics: The Balance of Payments

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