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‘The Balance of Payments figures give the most detailed information on Ireland’s large and rapidly growing internationally traded services sector’ (The Irish Times, September 2012) - Leaving Cert Economics - Question 7 - 2013
Question 7
‘The Balance of Payments figures give the most detailed information on Ireland’s large and rapidly growing internationally traded services sector’ (The Irish Times, ... show full transcript
Worked Solution & Example Answer:‘The Balance of Payments figures give the most detailed information on Ireland’s large and rapidly growing internationally traded services sector’ (The Irish Times, September 2012) - Leaving Cert Economics - Question 7 - 2013
Step 1
Explain the term Balance of Payments Current Account.
Answer
The Balance of Payments Current Account reflects the net income from international trade, which includes visible trade (goods) and invisible trade (services). It summarizes the total transactions between residents and non-residents involving goods, services, income, and current transfers, contributing to the assessment of a nation's economic standing.
Step 2
Explain two economic consequences of a surplus on the Balance of Payments Current Account.
Answer
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Injection into the Economy: A surplus indicates that the country is earning more from exports than it spends on imports, leading to increased income and consumption. This can stimulate economic growth as the multiplier effect amplifies initial spending.
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Increase in External Reserves: A surplus contributes to a rise in foreign exchange reserves, which can strengthen the country's financial position against international economic fluctuations and enhance credibility in global markets.
Step 3
Describe how foreign firms operating in Ireland may affect Ireland’s Balance of Payments Current Account.
Answer
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Salaries/Wages Returned to Home Country: Foreign firms often repatriate profits and wages, impacting the net income section negatively if these sums outweigh income from domestic firms.
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Imported Raw Materials: Foreign operations may require importing materials which would also decrease the current account balance due to higher import expenses.
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Exported Finished Products: If foreign companies focus on exporting their products, it increases visible exports, which positively affects the current account. However, this is contingent upon the nature of their global operations.
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Repatriated Profits: When foreign firms choose to repatriate a portion of their profits, it constitutes a capital outflow that can negatively affect the current account.
Step 4
Discuss the possible economic effects for the Irish economy of the euro rising in value relative to other international currencies.
Answer
An increase in the euro's value can lead to cheaper imports, but it may also render Irish exports more expensive to foreign buyers, potentially reducing export volumes. Tourism may also decline as Ireland becomes more expensive for visitors. Additionally, strengthening the euro might increase the cost of living and economic operations within the region, which can lead to reduced investment levels.
Step 5
Discuss the key challenges for Irish businesses on international markets.
Answer
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Finding New Markets: Businesses are challenged to identify potential new markets and navigate trade relationships effectively to expand their export reach.
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Global Recession: Economic downturns globally can reduce demand for Irish exports, emphasizing the need for market diversification.
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Difficulty Accessing Credit: Firms may struggle to secure necessary funding for expansion if banks maintain stringent lending protocols, hindering growth.
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Competitiveness: Irish companies face fierce competition, which may require innovation and efficiency improvements to maintain or grow market share.
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Exchange Rate Fluctuations: Changes in exchange rates can drastically affect profit margins and pricing strategies for businesses operating in multiple currencies.