2.2.5 Net trade

Question 1

Real income on the net trade balances:

Answer 1

• During periods of economic growth, consumers have higher incomes and they can afford to consume more. This means they are likely to import more so there is a larger deficit on the current account and vice versa

Question 2

Exchange rates on net trade balances:

Answer 2

• A depreciation of the pound means imports are more expensive and exports are cheaper
• ## Depreciations make the currency relatively more competitive against other currencies

Question 3

State of the world economy on net trade balances:

Answer 3

• A decline in economic growth in one of the UK’s export markets means there will be a fall in exports

Question 4

Degree of protectionism on net trade balance:

Answer 4

Protectionism is the act of guarding a country’s industries from foreign competition. It can take the form of tariffs, quotas, regulation or embargoes. so if the UK employed several protectionist measures, then the trade deficit will reduce. This is because the UK will be importing less due to tariffs and quotas on imports to the UK.