Economic Policy in the Open Economy Essay Example | Topics and Well Written Essays - 1750 words

Economic Policy in the Open Economy - Essay ExampleThe balance of payments is found on the principle of double entry bookkeeping and the monetary grade of every transaction is recorded as both a credit and a debit. Debits and credits in the balance of payments are collected into groups on the basis of what is tradeed or imported. The partitioning of these groups varies between countries however. We generally divide the balance of payments into four traditionalistic subdivisions current account, unilateral account, capital account, and gold account, these in return contain the value of goods and services either exported or imported plus dividend and interest income and payment, southward entry for gift received, imports and exports of assets like bonds and common stocks and, the import and export of gold for commercial purposes, respectively. The import of a bond or any asset exchangeable in context is recorded as a debit in the capital account. Since its purchase results in th e countrys residents paying out cash or capital, the import of a bond, like any other debit entry in the capital account, is called a capital outflow. On the other hand, the export of a bond means the residents actually receive money or capital and thus, the export of a bond, like other credit entries made in the capital account, is called a capital inflow. ... According to the Statistical Bulletin, The UKs current account deficit was recorded to be ?15.2 million in the third fag end of 2011, the naughtyest value recorded as yet. Its trade deficit extended to ?9.9 billion in the third nates of 2011, an increase of ?2.7 billion since the previous quarter. The income surplus was ?0.3 billion which is actually the smallest surplus ever since the fourth quarter of 2000. Moreover, the international investment position recorded UK net liabilities of ?245.5 billion at the end of the third quarter 2011 which outweigh the inward investment of ?22 billion by at least ten times. In the re cent picture, the increasing balance of payments deficit is moreover adding to the mound of problems. The repercussions produced by slowdown in exports followed by increasing faster growth in imports of goods and services caused by a rise in the value of sterling against other currencies has indeed led to a worsening balance of payments position. Due to the increasing deficit, the government has responded by the introduction of tough austerity measures aimed at narrowing the budgetary deficit however this has only led to soaring unemployment and rising business bankruptcies. There is a loss of employment because UK businesses are losing marketplace share and output to cheaper imports from overseas. A fall in business confidence and a decline in capital investment spending by UK exporting firms have been witnessed primarily because of the continually declining aggregate demand. Balance of payments deficits are nearly always bad for the preservation, except if a country is importin g a high volume of goods and services to make available diverse resources to its citizens. However, in the long term if the trade deficit is a symptom of a weak economy and a lack of