Balance of payment

The balance of payment accounts include:
a.Trade in goods
b.trade in services
c.The net flow of investment income from overseas assets.
d.Transfer of money between people and government
Trade in Services
Tourism and travel including Civil Aviation
Insurance and Business Consultancy Services
Banking and Accountancy services
Data process and other information services
Music and Entertainment
Shipping
Economic Effects of a Fall in Exports
Possible effects of a fall in demand for export in oversea markets
Negative impact on aggregate demand
C+I+G+(X-M)
Fall in national output-multiplier effect on income and spending
Might trigger an economic slowdown/recession
Actual GDP will fall below potential GDP(negative output gap)
Economic Policies to Reduce a Trade Gap
The cyclical element of the deficit tend to be self-correcting
A lower exchange rate improves the trade balance after a time lag-but this depends on the elasticity of demand and supply for UK output
Expenditure-switching Policies
Depreciation of exchange rate
Raises sterling price of imports
Higher profitability of exporting
But impact of lower exchange rate depends on elasticity of oversea demand for UK export