Balance Of Payments Deficit
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Balance Of Payments Deficit
(A-Level Question)
What is meant by a balance of payments deficit?
The balance of payments (BOP) is the part of a country's national accounts, which measures all currency flows into and out of the economy within a particular time period, usually a year. In other words, the balance of payments is an account of all the transactions of everyone living and working in the UK with the rest of the world. The BOP has three components:
(I) The current account - where payments for the purchase and sale of goods and services are recorded.
(ii) The capital account (private sector capital flows) - where flows of savings, investment and currency are recorded.
(iii) The balancing item - included in BOP to make the accounts balance.
The balance of payments always balances, so this term doesn't really exist. The term means that certain parts of the BOP are in deficit. In particular, it refers to the current account deficit. The current account deficit exists when the receipts from exports are less than the payments for imports...