Economic Indicators

An economic indicator is a statistic about the economy. These indicators allow us to analyze the performance of the current economy as well as make predictions about the future.

A few examples of these indicators are:
- unemployment rate
- birth & death rates
- literacy rates
- infant mortality rates
- human development index (HDI)
- happy planet index (HPI)
- consumer price index (CPI)

Balance of Payments

Basically, think of the Balance of Payments as the country's bank account. Any money that is deposited and withdrawn is recorded, resulting in the final amount of money that you still have.

The Balance of Payments records ALL the money transactions between a specific country and other countries. This mainly includes things such as imports in to the country, and things the country exports to other countries. This includes the measure of flows of money such as investments, loans, profits and dividends on shares.

When using a credit card, some people accidentally spend more money than they actually own. This results in being in debt.
Similar to this, a deficit is when a country has a negative balance of payments, more money is leaving the country than entering the country. Though this may be seen as being bad for the country, importing many goods and services can improve living standards. However, in the long term if the trade deficit is a symptom of a weak economy and a lack of competitiveness then living standards may decline.

When a country has a positive balance of payments, this is called a surplus. Having too much of supply, a surplus in the balance of payments means a excess in money. So, more money is coming in to the country, than leaving the country. This is GOOD for the country. A surplus in the balance of payments is like earning profit in a business.



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There are two different accounts included in the balance of payments...

1. Current Account = Income flows and goods & services
(according to the syllabus you need to know about the STRUCTURE of the current account)

This includes
- Visible trade in exports and imports (visible meaning goods)
- Invisible trades (invisible meaning services)
- Balance of income flows
- Balance of current transfers

*Remember: Imports are always NEGATIVE, exports are always POSITIVE* This is because imports coming in to the country means that you are paying for the goods and services. Exports on the other hand mean that other people are paying for the goods and services that your country has produced.

2. Capital (and financial) Account
This records all the capital transactions (non monetary transactions such as land), going in and out of the country. The transactions are usually associated with savings, investments and assets.

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So, putting the two different accounts together gives the final value of the Balance of payments.

In theory, the current account and the capital account should be balanced with each other so that the balance of payments is exactly zero.
Current account - Capital account = 0.

But remember, this hardly ever happens in reality.