Understanding Balance of Payments, EU Objectives, and Economic Policies
Balance of Payments
- Current Account: Goods, services, revenue, current transfers
- Capital Account: Capital acquisition and disposal of assets
- Financial Account: Investment, change in reserves
EU Objectives
- To provide an economic process and balanced and sustainable social development.
- Establish an authentic European identity.
- Develop cooperation activities in justice and home affairs.
- To ensure effective mechanisms and community institutions.
- Protect the rights and interests of European citizens.
Convergence Criteria
- Inflation may not exceed 1.5% of the average of the three most stable countries.
- Long-term interest rates: a maximum of 2% over the three most stable countries.
- Containment deficit (not to exceed 3% of GDP).
- Public debt not exceed 60% of GDP.
Common Policies
- Common Agricultural Policy (CAP): The objective is to bring agricultural prices to world market levels, complemented by a series of subsidies, including compensation for loss of income from farms to diminish prices.
- Environmental Policy: In order to improve the environment in general with the principles of protecting health and proper use of resources, a common environmental policy is set, whose principles include preventive actions, correcting damage, and sanctioning the polluter.
- Common Policy on Consumer Protection: Measures to protect health and consumer safety, economic interests, and rights.
The general rule is that as the price of goods rises, the predisposition to buy decreases. For producers, the higher the price, the greater the amount of goods or services they are willing to sell.
The Supply Curve
The supply curve is the graph showing the relationship between the price of a good or service and the amount of that good that sellers are willing to offer in the market.
The Demand Curve
The demand curve shows the relationship between the price of a good or service and what buyers are willing to buy.
The PPF
The PPF is the maximum amount of goods and services that can occur during a reference period from existing production factors.
The GDP
The GDP is the total amount of goods and services produced in the country during a time of reference. The monetary value may be expressed in current euros, or each year (nominal GDP) and in constant euros a year by reference for calculation (real GDP).
The Balance of Payments
The balance of payments accounting is a tool to analyze the transactions that take place among residents of a country and the rest of the world during a given period.
Structural Funds
- European Regional Development Fund (ERDF): Aimed at promoting development in poor regions, focusing on the level of competitiveness, employment, environmental protection, etc.
- European Social Fund (ESF): The purpose of this structural fund is primarily the fight against unemployment. It also addresses inequality between men and women, sustainable development, and cohesion.
- European Agricultural Guidance and Guarantee Fund (EAGGF): Its purpose is to develop disadvantaged regions through the improvement of their production, processing products, and marketing.