Business Economics geektonight com pdf

Balance of Payments (BOP) Accounts

• Current account includes trade in goods (exports/imports), services (tourism, software), income (interest/dividend) and transfers (remittances).
• Capital/financial account includes FDI/FPI, loans, banking capital flows and other investment.
• If the current account shows a deficit, it must be financed by capital inflows or by using foreign exchange reserves.

Thus, BOP shows how a country earns and spends foreign exchange through current and capital transactions.

Difference:

• Change in quantity demanded occurs due to a change in the price of the good; it shows movement along the same demand curve (extension/contraction).
• Change in demand occurs due to non-price factors (income, tastes, related goods, ads); it causes a shift of the demand curve (right/left).

Hence, price change causes movement; other factors cause shift.

Methods of Measuring National Income (Exam-Style)

National income (GDP/NI) can be measured using three standard approaches. In principle, all three should give the same aggregate because production creates income and income leads to expenditure.

1) Product/Output method (Value Added)

• Sum value added by all producers.
• Value added = output value − intermediate goods.
• Avoids double counting.

2) Income method

• Sum factor incomes: wages, rent, interest, profit and mixed income.

3) Expenditure method

• Sum final spending: C + I + G + (X − M).

Comparison table:

Conclusion: Each method uses a different angle, but all aim to measure the same total economic activity.