2.2.5- Net trade

Question 1

What is net trade?

Answer 1

Total exports minus total imports

Question 2

When is the trade balance in surplus?

Answer 2

When exports> imports

Question 3

When is the trade balance in deficit?

Answer 3

When imports > exports

Question 4

What are the influences on net trade balance?

Answer 4

-real income
-exchange rates
-state of the world economy
-degree of protectionism
-non price factors
-price

Question 5

How does real income influence net trade?

Answer 5

-during economic growth, consumers have higher incomes, so are likely to import more
-during economic decline, real incomes fall so decreased imports
-however if the increase in real income is due to export led growth, then net trade will increase

Question 6

How do exchange rates influence net trade?

Answer 6

-a depreciation of the pound means imports are more expensive so imports decrease
-depreciation makes the currency more competitive against other currencies

Question 7

What does a depreciation meaning imports are more expensive depend on?

Answer 7

Depends on the elasticity of imports and exports as if imports are price elastic, the values of imports will fall, but if they are inelastic, the value of imports will rise

Question 8

What does depreciations making currency more competitive depend on?

Answer 8

Which currency the pound depreciates as if it’s the dollar or euro, it is likely to have a more significant effect

Question 9

How does the state of the world economy influence net trade?

Answer 9

• a decline in growth in one of the uks export markets means there will be a fall in exports, for example the EU

Question 10

How does the degree of protectionism influence net trade?

Answer 10

• if there is high protectionism on imports into the uk, imports will decrease, but other countries may retaliate, which would decrease exports

Question 11

How do non price factors influence net trade?

Answer 11

-the competitiveness of a country’s goods and services impacts how many exports the country has
-if uk goods are of a higher quality and design exports will be high as foreign demand will increase
-if uk goods are well marketed people will have a stronger desire to buy British goods so exports will increase

Question 12

How does price influence net trade?

Answer 12

-high prices will mean that goods are less competitive so exports will decrease
-also affected by productivity as higher productivity leads to lower costs so lower prices