IB Economics 4.6 Balance of Payments Key Definitions

A statement or record of a country's economic transactions with the all other countries over a specific time period (often a year).

Occurs on an account when total debits exceed total credits, so the country pays out more on its international transactions than it receives.

Occurs on an account when total credits exceed total debits, so the country receives more from its international transactions than it pays out.

The capital account is the sum of the balance of capital transfers and transactions in non-produced, non financial assets.

The large-scale and rapid movement of financial assets or capital from a country to foreign markets, often due to economic instability, political uncertainty, or fear of currency depreciation.

The institution responsible for a country's monetary system. It issues currency, regulates and supervises commercial banks, acts as banker to the government, and conducts monetary policy.

In the balance of payments, an entry recording money flowing into the economy from abroad, such as payment for exports or an inflow of foreign investment.

The current account is the sum of the balance of trade in goods and services, income and current transfers.

In the balance of payments, an entry recording money flowing out of the economy to abroad, such as payment for imports or investment sent overseas.

Policies that aim to reduce overall spending in the economy, including spending on imports.

Policies that aim to switch spending from imports to domestic goods and services.

All resources or inputs used to produce goods and services.

The financial account is the sum of foreign direct investment (FDI), portfolio investment, reserve assets and official borrowing.

A condition which determines the level of success a depreciation or devaluation of a currency rate of exchange will have on improving a current account deficit in the balance of payments.

A current account that stays in deficit (imports of goods, services, and income outflows exceed exports) year after year, rather than for a single year or one phase of the business cycle.

A current account that stays in surplus (exports of goods, services, and income exceed imports) year after year, financed by a net outflow of capital as the country acquires foreign assets.

A financial investment by a foreigner, such as the purchase of stocks.