Aqa Economics Example Short Answer Essay

Primary income flows encompass inward, and outward income flows into an economy. Inwards primary income flows comprise of income flowing into the economy in the current year, which is generated by UK-owned capital assets located overseas. Outward primary income flows include income flowing out of the economy in the current year, which is caused by overseas-owned capital assets located in the UK. Secondary income flows are current transfers, such as gifts of money, international aid and transfers between the UK and the EU flowing into or out of the UK economy in a particular year. In 2011 the UK s primary and secondary income as a percentage of GDP became negative. Reasons for the deterioration of the UK s primary and secondary income balances include: return for UK-owned capital assets being low, contributions to other states, and the sale of assets.

A low return for UK-owned capital assets could cause a fall in inflows of primary income. Slow growth in the EU and BRIC nations, in which the UK has capital assets, is a critical factor in the limited dividends and rates injected into the UK economy. The slow growth of EU member states after the 2009 financial crash instigated a fall in the profit margins of EU firms and depreciation in EU Housing prices. As a result, citizens of the United Kingdom working abroad within the EU may suffer lower wages and resultantly send less money back home. Also, UK nationals are likely to hold fewer assets overseas due to the fact it is comparatively less profitable than the early 2000s. These factors contribute to the deterioration of the UK s primary account balance.

The UK s secondary income is likely to suffer due to the UK s aid and EU contributions. The UK s budget for foreign aid is 0.7%, but since the UK was the fastest growing economy in 2016, as our real national output increases, they have to pay a higher numerical value in foreign aid. The UK has had to pay a growing sum to the EU, since joining the EEC in 1973. Indeed, the UK made a gross payment of £17.8bn to the EU in 2015. The EU budget and foreign aid makes up a significant part of secondary income balance and has contributed to its deterioration.

Another reason for the deterioration of the UK s primary income balance over time is due to the UK s increasing sale of assets. The government has sold many assets and properties to foreign investors in a bid to finance its current account deficit. The United Kingdom is appealing to foreign investors since it regarded as a safe haven for financially (i.e. due to the existing housing bubble in London properties) and legally (since regulations safeguard and secure their foreign ownership of assets). Thus, the rapid growth of the UK economy, incentivises foreigners to invest in UK assets and increase primary outward flows from the UK.