2.2.5 - Net Trade

Question 1

How does real income influence the trade balance

Answer 1

A rise in incomes leads to greater spending on imports, worsening the trade balance

Question 2

How do exchange rates influence the trade balance?

Answer 2

• SPICED
• A stronger pound makes imports cheaper and
  exports dearer
• This leads to more spending on imports by domestic consumers and less spending on exports by foreign consumers

Question 3

How do exchange rates influence the trade balance?

Answer 3

• SPICED
• A stronger pound makes imports cheaper and
  exports dearer
• This leads to more spending on imports by domestic consumers and less spending on exports by foreign consumers

Question 4

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

Answer 4

• A boom in trading partner economies increases demand for exports, improving the trade balance

Question 5

How does the degree of protectionism influence the trade balance?

Answer 5

• Putting tariffs and trade barriers on imported goods could reduce the amount of imports coming in to a country - Other countries might retaliate, so the impact on the trade balance might be neutral

Question 6

How do non-price factors influence the trade balance?

Answer 6

• Good quality products and innovative design might attract more foreign consumers to buy exports. This would improve the trade balance