• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Evaluate the economic effects of Samsung investing in the UK on the balance of payments and national income

Extracts from this document...

Introduction

b) Evaluate the economic effects of such an investment on: (i) The UK's balance of payments (ii) The UK's national income b) In this essay I intend to discuss the economic effects of Samsung investing in the UK on the balance of payments and national income. Before analysing the economic effects it is important to define the balance of payments. The balance of payments is a record of all financial dealing over a period of time between economic agents of one country and all other countries. The balance of payments accounts can be split into two components. The current account where payments for the purchase and sale of goods and services are recorded and the capital account where flows of money associated with savings, investment, speculation and currency stabilisation are recorded. It is true to say that Samsung will be manufacturing a product in their factory and will want to sell both to the UK residents and abroad to other countries. The payments for the purchase and the sale of these goods will be recorded in the current account. To manufacture these goods Samsung will need to purchase machinery, raw materials and a workforce. ...read more.

Middle

Although components parts of the accounts may be positive or negative. If there is a surplus on the current account, then outflows on the capital account must be greater than inflows but if there is a deficit on the current account then inflows on the capital account must be greater than outflows. I will now analyse the effects on national income. Before discussing these effects it is important to define the circular flow of income. The circular flow is a flow of money round the economy as it passes through consumers and producers. It consists of injections and leakages or withdrawals. The injections consist of investment, government expenditure and exports whereas the leakages consist of savings, taxation and imports. The injections and withdrawals of the circular flow of income are always equal due to the national income identity which states that national income = national output = national expenditure. As a whole Samsung have caused two big effects on the national income in the UK. The initial investment made by Samsung is an injection into the UK circular flow of income, thus increasing national income. ...read more.

Conclusion

The multiplier effect states that an increase in autonomous expenditure will lead to an even greater increase in income. In conclusion it is clear that there will be an increase in national income, due to the initial investment and the employment of Korean workers, even though there is a big leakage from the repatriation of profits. If Samsung decided to employ UK workers then this would increase unemployment, which is good for the economy. With this increase in national income, I can apply the accelerator theory. The accelerator theory states that the level of planned investment varies with the rate of change of income or output rather than with the rate of interest. The more goods and services demanded from Samsung due to the increase in income, will force them to invest in more capital stock. These changes in spending, lead to much bigger changes in investment. With reference to the balance of payment in the long-run Samsung will use UK suppliers as they will not have to pay import costs and the UK government due to supply side policies will force Samsung to employ UK workers. Therefore, there will be no imports and so exports will exceed imports leading to a surplus in the current account. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Supply side policies and its economic impact.

    One example is regulation; another is taxation; yet another is subsidy policy. Third, unemployment remains a deep concern in much of Europe where roughly 10% of the labour force is out of work. Taxation and the provision of public goods.

  2. An Empirical Investigation into the Causes and Effects of Liquidity in Emerging

    Thus, it is very informative for investors to consider the liquidity effects of the bonds they purchase. More specifically to this paper it is of interest to see how these liquidity effects come about and how, indeed if at all they affect investors choices.

  1. Measurement of National Income, Strengths and Weaknesses of National Income Statistics.

    The households will probably act so that part of this extra income is then spent and part is saved. This extra consumer spending then gives rise to a series of further incomes and expenditures. The overall increase in spending is much higher than the initial injection.

  2. The National Debt

    the decision of how to spend its money and how much of a deficit to run. Debt is an ever-present force in the American economy. With household indebtedness hitting new peaks, some forecasters fear a consumer belt-tightening that could bring on recession.

  1. Explain the various factors that would lead to an increase in the size of ...

    Depreciation in the exchange rate would provide a competitive boost to UK producers and might lead to an improvement in the balance of payments. However, a low exchange rate would also lead to an increase in the costs of imported goods and services risking higher "cost-push" inflation.

  2. What effects have interest rates had on economic indicators like GDP, Inflation ,Unemployment and ...

    When the pound increases against other currencies, our exports become more expensive abroad, so it will not sell as much. Also foreign goods become relatively cheaper making British products are less desirable. The opposite happens when interest rates decrease. How Interest Rates affect Economic indicators.

  1. Inequality in the UK.

    By 2001-02, the Gini coefficient had risen back to its 1990 level. Ultimately the level of income one earns will have a direct effect on the wealth they accumulate. Wealth is considerably less evenly distributed than income. Life cycle effects mean that this will almost always be so: people build

  2. The Social Balance - The Mixed Economy.

    Leaving out of account the nationalised industries (which do advertise), public expenditure rose in the twentieth century from 12% of GNP in 1910 to 38% in 1961 with a further peace- time rise since then which has brought the figure to 50% by 1975.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work