1. The Balance of Payments EdExcel A2 Macro – June 2016

2. Examination length: 2 hours One essay question with two parts from a choice of three topic areas. Worth 50 marks. One data response question out of a choice of two questions. Worth 50 marks. The Balance of Payments Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade The A2 Macro Exam (Unit 4) June 2016

3. Understand the different components of the Balance of Payments Understand the factors influencing the size of deficits and surpluses on different components of the Balance of Payments Understand the significance of deficits and surpluses on the current account Evaluate measures to correct trade imbalances The Balance of Payments Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade A2 Syllabus for the Balance of Payments

4. The Balance of Payments The balance of payments (BOP) records all financial transactions made between consumers, businesses and the government in one country with other nations Inflows of foreign currency are counted as a positive entry (e.g. exports sold overseas) Outflows of foreign currency are counted as a negative entry (e.g. imported goods and services) The current account of the balance of payments is the main measure of external trade performance The financial account measures inflows and outflows of financial capital across national boundaries Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade Key Intro for Balance of Payments (BoP)

5. Current Account (1) Balance of trade in goods (2) Balance of trade in services (3) Net primary income (interest, profits, dividends and migrant remittances) (4) Net secondary income (contributions to EU, military aid, overseas aid) Capital account Sale/transfer of patents, copyrights, franchises, leases and other transferable contracts, and goodwill Transfers of ownership of fixed assets Financial Account – includes transactions that result in a change of ownership of financial assets and liabilities between UK residents and non-residents Net balance of foreign direct investment flows (FDI) Net balance of portfolio flows (e.g. inflows and outflows of debt and equity) Balance of banking flows (e.g. hot money flowing in/out of banking system( Balancing item (estimated errors & omissions) Changes to the value of reserves of gold and foreign currency Overall balance of payments = zero The Balance of Payments Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade The Balance of Payments Account

6. The Major Export (Goods) for each country in the World in 2014

7. Current account surplus countries (Measured as a % of GDP, Source IMF) Country201320142015 Singapore17.919.120.8 Taiwan Province of China10.812.4 Netherlands10.810.29.6 Kuwait41.231.09.3 Germany6.47.48.5 Switzerland11.17.37.2 Korea6.26.37.1 Denmark7.26.37.0 Norway10.09.47.0 Sweden6.76.26.7 Slovenia5.67.06.7 Thailand-0.93.36.2 Qatar30.926.15.0 Ireland3.13.63.2 China1.62.13.1 Azerbaijan16.414.13.0 Japan0.80.53.0

8. Causes of current account surpluses

10. R&D Spending and Scientists per Million People – By Country (2013)

11. Economic Policies to Reduce a Trade Deficit Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade Significance of Current Account Surpluses

12. Economic Policies to Reduce a Trade Deficit Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade Significance of Current Account Surpluses China’s persistent current account surpluses built around their export- led economy has been a key factor allowing the country to build up huge reserves of gold and foreign currency – this is shown in the chart

13. Economic Policies to Reduce a Trade Deficit Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade Significance of Current Account Surpluses Yuan appreciating against the US dollar Yuan devaluation in summer of 2015

14. Current account deficit countries (Measured as a % of GDP, Source IMF) Country201320142015 Libya13.6-30.1-62.2 Liberia-28.2-28.7-41.6 Mozambique-40.0-34.7-41.0 Djibouti-23.3-25.6-31.4 Zimbabwe-25.4-22.0-22.9 Lebanon-26.7-24.9-21.0 Niger-15.3-15.2-19.1 Kyrgyz Republic-15.0-16.8-17.7 Algeria0.4-4.5-17.7 Montenegro-14.6-15.4-17.0 Oman 6.62.0-16.9

15. Causes of current account deficits

17. Economic Policies to Reduce a Trade Deficit Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade Significance of Current Account Deficits

18. Economic Policies to Reduce a Trade Deficit Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade Measures to Correct a Current AC Deficit

19. Economic Policies to Reduce a Trade Deficit Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade Measures to Correct a Current AC Deficit

20. Economic Policies to Reduce a Trade Deficit Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade Measures to Correct a Current AC Deficit

21. Annual UK Trade Balance in Goods and Services Source: Office for National Statistics

22. UK Trade and Current Account Balance (% of GDP) In 2015, the UK’s current account deficit was £96.2 billion, up from a deficit of £92.5 billion in 2014. The deficit in 2015 equated to 5.2% of GDP at current market prices. This was the largest annual deficit as a percentage of GDP at current market prices since annual records began in 1948 In 2015, the UK’s current account deficit was £96.2 billion, up from a deficit of £92.5 billion in 2014. The deficit in 2015 equated to 5.2% of GDP at current market prices. This was the largest annual deficit as a percentage of GDP at current market prices since annual records began in 1948

23. Economic Policies to Reduce a Trade Deficit Why is World Trade Growing Slowly at the Moment?WTO Report (2015) Annual Growth of World Trade A2 – Key Focus Points

24. The Balance of Payments EdExcel A2 Macro – June 2016