Balance of Payments Overview

Records a country's payments and receipts involving foreign transactions using double-entry bookkeeping.

Part of the BoP that includes goods, services, and incomes between residents and non-residents.

When a country's exports exceed its imports, signifying the country lends money abroad.

When a country's imports exceed its exports, indicating the country borrows money from abroad.

The value at which one currency can be exchanged for another currency.

An increase in the value of a currency relative to another currency.

A decrease in the value of a currency relative to another currency.

In competitive markets, identical goods must sell for the same price in different countries.

The exchange rate disregarding inflation and price level differences.

A measure of a country's competitiveness against others, accounting for price level differences.

A method to measure Purchasing Power Parity (PPP) by comparing Big Mac prices in different countries.

Factors leading to high inflation include energy crisis, pandemic, war, supply issues, and increased demand.

Deflation driven by recession effects like falling prices and reduced demand.

The European Central Bank aims for a 2% inflation rate for price stability and growth.

When a country can produce a good more efficiently than another country.

The ability to produce a good at a lower opportunity cost than another country.

Countries should specialize in goods they produce most efficiently, regardless of absolute advantages.

Proposed by Paul Krugman, suggesting firms can gain economies of scale through trade, enhancing variety and lowering prices.

A model explaining factors of national competitive advantage.

Resources like natural resources and skilled labor that affect competitiveness.

Characteristics of domestic market demand that influence industry success.

How government policies can enhance or hinder competitiveness.

Corruption may help bypass bureaucratic delays in weak governance.

Corruption can increase inefficiency and harm economic growth.

Suggests free trade enhances overall production without government intervention.

A measure of how business-friendly an economy is based on various factors.

No direct correlation exists between Corruption Perception Index and GDP growth.

The price of a basket of goods should be equivalent across countries.

e = P*/P where e is the exchange rate, P* is foreign price, and P is domestic price.

Higher interest rates lead to currency appreciation by attracting investment.

Currency value determined by the foreign exchange market with monetary autonomy.

A system where a currency's value is fixed to a reference currency for stability.

Currencies are fixed at a mutually agreed exchange rate to ensure stability.

A pegged exchange rate attempt to keep currency within a target range of a reference currency.

Occurs when speculation attacks a currency's value, leading to potential devaluation.

The IMF helps stabilize countries by providing lending during financial crises.