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Balance of Payments Disequilibrium | Economics Blog

Balance of Payments Disequilibrium


Readers Question: Explain what is meant by a balance of payments disequilibrium?

The Balance of Payment is comprised of two main components

  • The Current Account (trade in goods, services + investment incomes
  • The Financial Accout (used to be called capital account)

The balance of payments measures the value of imports and exports. If the UK import more goods and services than we export then we have a deficit on the Current Account. A deficit on the current account is generally referred to as disequilibrium.

The UK currently has a deficit on the current account. Last year in 2007, the trade deficit widened to £4.4bn in the month of December See ONS – balance of payments

Note a large surplus on the current account would also be seen as a disequilibrium.

Overall Equilibrium in Balance of Payment.

In a floating exchange rate, the two components of the Balance of Payments should balance each other out. If the UK has a deficit on the current account of £38bn. Then in a floating exchange rate, the financial account should have a surplus of £38bn. This is because financial outflows must be matched by financial inflows.

Example, If we buy more imported Goods than exported goods then we need financial flows (e.g. hot money, long term capital investment to finance the purchase of imports)

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29 comments ↓

#1 efe on 03.12.08 at 7:25 pm

help me solve the question

if balance of payment must all be balance while then do will still have balance of payment disequilibrium? support your answer with diagram and graph

#2 gbenga on 03.22.08 at 4:30 pm

if balance of payment must always be balanced .why then do we still have balance of payment diseqilibrium. support answe with illustrations and diagrams.

#3 Candiea on 09.24.08 at 8:04 pm

Disequilibrium will exist even if the BOP is balanced because while a country’s imports (expenditure) may be than its exports (revenue), it could still be getting revenue by some mean other than exporting its goods. Read up on on the capital & current accounts and what makes up these accounts and you will get the full gist of what I mean.

#4 Frank Miyake on 01.06.09 at 1:30 pm

How BOP disequilibrium can be restored?

#5 tania on 01.12.09 at 5:48 pm

if balance of payment must all be balance while then do will still have balance of payment disequilibrium? support your answer with diagram and graph

#6 shabir ahmad on 01.13.09 at 8:00 am

international services are not used for file transfer protocol gopher and telnet .

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#7 neha gupta on 01.18.09 at 7:23 pm

discuss how devolution helps in the correction of adverse BOP of a country. is this measures equally applicable to the developing countries exporting mainly primary goods?

#8 neha gupta on 01.18.09 at 7:27 pm

discuss how devolution helps in the correction of adverse BOP of a country. is this measure equally applicable to the developing countries exporting mainly primary goods?

#9 neha gupta on 01.18.09 at 7:29 pm

on what factors does the balance of payments depend?

#10 neha gupta on 01.18.09 at 7:32 pm

suggest measures for improving balance of payments in India.

#11 mashal babar on 01.30.09 at 10:06 am

will you mail me the balance of payment of india and pakistan

#12 chela mercy on 02.28.09 at 2:16 pm

mail me the measures to improve balance of payment.

#13 ashley kadye on 03.10.09 at 1:42 pm

measures to improve balance of payments include improving domestic industry.

#14 SWEETY on 04.17.09 at 9:32 pm

balnce of payment is always deficit in developing countries .Why?

#15 steven on 04.24.09 at 1:19 am

explanations are well but it is just based on uk. what about other countries. do the explanations remains same for all countries?

#16 please tell cause of equilibrium in BOP on 06.11.09 at 10:49 am

what is equilibrium & equilibrium means deficit?

#17 rasu on 07.26.09 at 11:12 am

what wre the consequences of bop disequilibrium to domestic and international market?

#18 sonu on 09.29.09 at 12:55 pm

plz tell us about disequilibriumon bop

#19 henry on 10.21.09 at 3:16 pm

what exactly is BOP diequilibrium?

#20 fok on 10.21.09 at 3:21 pm

Why when the quantity supplied greater than the quantity demanded can’t be described as a surplus?

#21 Aladeyelu Olamide on 12.08.09 at 4:53 pm

“Imbalance of payment must always balance” then why do we still have balance of payment disequilibrium. DISCUSS EXTENSIVELY

#22 goke nowo on 12.09.09 at 11:32 am

help me solve the question

if balance of payment must all be balance while then do will still have balance of payment disequilibrium? support your answer with diagram and graph

#23 arun sahu on 12.20.09 at 6:55 pm

the trends in the indias balance of payment position .what are the reason for disequilibrium in the balance of payment

#24 K. S. LOGANATHAA on 12.24.09 at 2:44 pm

methods to overcome balance of payment disequilibrium in economics?

#25 navinasolanki on 02.10.10 at 12:30 pm

the trends in the indias balance of payment position .what are the reason for disequilibrium in the balance of payment

#26 gasper william on 02.18.10 at 11:30 am

what are the different methods of calculating the balance of payment and the derivation of there formulars.

#27 efe on 02.27.10 at 1:23 pm

In what sense can a balance of payment be in equilibrium and in what sense will it always balance

#28 Harish Keni on 03.11.10 at 1:34 pm

Who is maintaining this Balance Of Payment ? How do u come to know if u want to c the Deficit or Surplus in the Balance of Payment ?

#29 kanak on 03.17.10 at 1:51 pm

it is to eazy to calculate gdp and understand economics

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