Page 204 - DECO201_MACRO_ECONOMICS_ENGLISH

Hitesh Jhanji, Lovely Professional University
Unit 12: Balance of Payments

Unit 12: Balance of Payments Notes

CONTENTS
Objectives
Introduction

12.1 Introduction to BOP and Types of Accounts
12.1.1 Equilibrium and Disequilibrium in Balance of Payments
12.1.2 Types of Equilibrium

12.1.3 Types of Disequilibrium
12.2 Factors Responsible for Imbalances in BOP
12.3 India’s Balance of Payments
12.4 Automatic Adjustment in BOP
12.5 Summary

12.6 Keywords
12.7 Review Questions
12.8 Further Readings

Objectives

After studying this unit, you will be able to:
Describe the concept of Balance of Payments (BOP);
Identify the factors that cause imbalance in BOP;
Know the measures to correct BOP imbalances;
Discuss India’s BOP trends;

Explain the automatic adjustment mechanism.

Introduction

The BOP is a statistical account of the transactions between residents of one country and residents
of the rest of the world for a period of one year or fraction thereof.
It is a systematised procedure for measuring, summarising and stating the effects of all financial
and economic transactions.

The BOP statistics reflect all the economic transactions of a country vis-à-vis rest of the world for
which payment may or may not be involved. These transactions may include exchange of goods
and services or there may be loan transactions, gifts and grants, or short-term, long-term and
portfolio investments.
For all these transactions, except gifts and grants, payment is involved in foreign currency.

A transaction is recorded as being either a credit or a debit depending on the direction of the
payment. If the transaction results in a cash outflow, it is recorded as a debit. Likewise, if the
transaction results in a cash inflow it is recorded as a credit.

LOVELY PROFESSIONAL UNIVERSITY 199