Economics Section: Chp 35Further Reading Keywords – balance of trade, imports, exports, visible trade, invisible trade, deficits, surplus Class : Y11

Economics Section: Chp 35 Further Reading

Keywords – balance of trade, imports, exports, visible trade, invisible trade, deficits, surplus

• Class : Y11

• Lesson Topic: Government & Economy

• Scheme of Work: Balance of Payments





Lesson Objectives ALL (KNOWLEDGE) Define and describe the terms of balance of trade

MOST (ANALYSIS) • Examine and Analyse the concepts of the trade balance

SOME (EVALUATION )

Evaluate the pros and cons & Justify your views of trade deficits and surpluses.

P&DPlanning and

Data

Higher thinking

Skills



Planning ToolsP&DPlanning and

Data



Define and describe the terms of balance of trade[Grade E-D]

Examine and Analyse the concepts of the trade balance

[Grade C-B]

Evaluate the pros and cons & Justify your views of trade deficits and surpluses.

[Grade A-A*]

Personalise your learning. . .



Keyword Definition

Balance of payments

Balance of trade

Exports

Imports

Invisible trade

Visible trade

Deficit

Surplus

CONNECTIVES



CONNECTIVES for AnalysisCONNECTIVES for ApplicationCONNECTIVES for Evaluation

COMPARINGEqually…As with…Like…In the same way…Similarly…Even so…Likewise…CAUSE & EFFECT

Consequently… Due to…As a result… Therefore..Because of… Because…

CONCLUDINGFirstly… After…Secondly… Before…Overall… I believe…Finally… I think …In conclusion… it depends…To conclude… short term…Meanwhile… Long term…

CONTRASTINGAlthough… Except…Moreover… If…However… Yet…Apart from… Unless…Despite… As long as…

EMPHASISINGMost importantly…Significantly…Notably…Especially…Above all…In particular…Indeed…

QUALIFYINGDespite… Yet…As long as… Unless…Apart from… If…Moreover… Except…However… Although…

ADDINGIn addition… And…Too… Also…Additionally… As well as…Furthermore…

ILLUSTRATINGFor instance… Such as…In the case of… So…For example…As revealed by…As illustrated by…



Climb the LadderA-A*

1. To what extent 2. Do you think3. Evaluate whether (8-10m) 10+ connectives & key words

C-B

1. Explain 2. Compare3. Analyse (5-8m) 5+ connectives & key words

E-D

1. Define 2. Describe3. Identify (2-4m) 2 + connectives & key words

ATDApply to

demonstrate



Objectives • Define balance of payments and explain the relevance of trade

• Explain current account and identify capital account

• Causes of a surplus or a deficit on the current account



Balance of Payments is based on Trade

• Buying and selling goods and services from other countries• The purchase of goods and services from abroad that leads to an

outflow of currency from the UK – Imports (M)• The sale of goods and services to buyers from other countries leading to

an inflow of currency to the UK – Exports (X)



The Flow of Currencies:

Whisky sold to Italian hotel

€ changed to £

Export earnings for UK(Credit on Balance of Payments)

Map courtesy of http://www.theodora.com



The Flow of Currencies:

Oil

Oil from Russia

£ changed into Roubles Export earnings for Russia

Import expenditure for the UK(Debit on balance of payments)

Map courtesy of http://www.theodora.com



Exchange Rates

S, P, I, C, E, D. • A depreciation in exchange rate should lead to a rise in Demand for

exports, a fall in demand for imports – the balance of payments should ‘improve’

• An appreciation of the exchange rate should lead to a fall in demand for exports and a rise in demand for imports – the balance of payments should get ‘worse’

• BUT, exchange rates aren’t fixed therefore don’t reflect the true value of things?



Exchange Rates and PPP

• The exchange rate would be a proper reflection of the purchasing power in each country if the relative values bought the same amount of goods in each country.

• E.g. If the price of McDs in the US was $3.40 and in Europe €5.10, the exchange rate between the two countries should be $1 = €1.50

• If EU price was lower than this value, the $ would be undervalued and if any higher, the $ would be overvalued.



Big Mac Index and PPP

http://www.themoneymonkey.org/2011/04/burgernomics-and-the-big-mac-index/

If a Big Mac costs $3.41 in the United States, how much are they in the rest of the world? The most inexpensive = China $1.45. Most expensive = Switzerland $5.20.

PPP says a Big Mac should cost $3.41 in all countries if measured by dollars. However, that’s not the case because currencies fluctuate in value, so are more expensive (overvalued) or inexpensive (undervalued). Also, the cost of living is different in countries and price of McDs reflects that. If a McD is 50% more expensive in Australia, then your income would probably be 50% more as well.





What is the Balance of Payments?• Is a measurement of a country’s dealings with the World.

• 2 elements: Current Account and Capital Account

• The Current account includes:– (a) Trade in Goods – (b) Trade in Services– (c) Net Flow of Investment Income– (d) Transfers of Money



Trade in Goods• Consumer durables

– Household goods– Motor vehicles– Personal computers

• Capital goods / technology /software• Commodities (including oil and other fuels)• Components & basic raw materials • Foodstuffs and Beverages



Trade balance in goodsBalance of exports minus imports of goods at current prices, £ billion

UK Balance of Trade in Goods

Source: Reuters EcoWin

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

GB

P (

billi

ons)

-70

-60

-50

-40

-30

-20

-10

0

10



UK balance of trade in oilQuarterly trade balance, value of exports - value of imports, £ billion

UK Balance of Trade in Oil

Source: Reuters EcoWin

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

GB

P (

billi

ons)

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5



After goods and services comes..• Net investment (+)

– Interest payments and profits from external assets locates outside UK

• Transfer of money (-)– Between governments (e.g. UK funds IMF)– EU funding



Draw the Balance of Payments • For UK



The Balance of Payments• A record of the trade between the UK and the rest of the world.• Trade in goods• Trade in services• Income flows

= Current Account• Transfer of funds and sale of assets and liabilities

= Capital Account



Balance of Payments

The UK Balance of Payments on Current Account 1998 - 2004Source: ONS (http://www.statistics.gov.uk/cci/nugget.asp?id=194) (Crown copyright material is reproduced with the permission of the Controller of HMSO and the Queen's Printer for Scotland.)



PLENARY



Climb the LadderA-A*

1. To what extent 2. Do you think3. Evaluate whether (8-10m) 10+ connectives & key words

C-B

1. Explain 2. Compare3. Analyse (5-8m) 5+ connectives & key words

E-D

1. Define 2. Describe3. Identify (2-4m) 2 + connectives & key words

ATDApply to

demonstrate



Pass the ParcelAdd as much information you can remember from today’s lesson

When the horn blows – pass your sheet to the next table!

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Learning



Neighbours

2 things your neighbour has learnt today

1 question your neighbour wants

to ask

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Summarise your learning today into a single tweet

140 characters

Keep all of the information

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STOP

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1 questionyou need to ask

2 new things you learnt

3 pieces of information

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Documents

Economics Section: Chp 35Further Reading Keywords – balance of trade, imports, exports, visible trade, invisible trade, deficits, surplus Class : Y11