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

scotch Policy in the Open Economy - Essay ExampleThe balance of payments is based on the prescript of double entry bookkeeping and the monetary value of every transaction is save as two a credit and a account. Debits and credits in the balance of payments are collected into groups on the solid ground of what is exported or merchandise. The partitioning of these groups varies between countries however. We generally divide the balance of payments into four traditional subdivisions authoritative account, coloured account, capital account, and florid account, these in return contain the value of goods and work either exported or imported plus dividend and interest income and payment, second entry for gift received, imports and exports of assets like perplexs and common stocks and, the import and export of gold for commercial purposes, respectively. The import of a bond or any asset similar in place setting is recorded as a debit in the capital account. Since its purchase resu lts in the countrys residents paying out money or capital, the import of a bond, like any otherwise(a) 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 gazillion in the third quarter of 2011, the highest value recorded as yet. Its trade deficit extended to ?9.9 billion in the third quarter 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 investing funds position recorded UK net liabilities of ?245.5 billion at the end of the third quarter 2011 which outweigh the inner investment of ?22 billion by at leas t ten times. In the recent picture, the increase balance of payments deficit is only adding to the mound of problems. The repercussions produced by slowdown in exports followed by increasing meteoric 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 inception of tough austerity measures aimed at narrowing the budgetary deficit however this has only led to high-flown unemployment and rising business bankruptcies. There is a loss of employment because UK businesses are losing market share and proceeds 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 intimately always bad for the economy, except if a cou ntry is importing 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 prognostic of a weak economy and a lack of