2.2.5: Net Trade (X-M) Flashcards
How does real income influence net trade?
-Net trade decreases,as high real income tends to result in increased imports as AD increases.
-However, if real income increases due to export-led growth, then net trade increases.
How does exchange rates influence net trade?
-A strong currency makes imports cheap, and exports less appeasing (as it costs more overseas).
-Net trade decreases, as imports increase and exports decrease.
-The elasticity of imports and exports is a factor.
How does the state of the world’s economy influence net trade?
-If the UK’s main export country is doing well, then UK exports (and net trade) are likely to rise.
What is protectionism?
Government policies that restrict international trade to protect domestic industries.
How does degree of protectionism affect net trade?
-Tariffs, quotas and technical barriers are introduced to make selling goods more difficult.
-If there is high protectionism on imports, imports will decrease.
-If there is high protectionism on exports, exports will decrease.
What are the non-price factors of net trade?
-Quality & design.
-Marketing.
How does non-price factors influence net trade?
-If UK goods are of high quality & design, exports will increase, as foreign demand for UK goods increase (increasing net trade).
-If UK goods are well-marketed, people have a stronger desire to buy UK goods (increasing net trade).
What are the factors that influence net trade?
-Real income.
-Exchange rates.
-State of the world economy.
-Degree of protectionism.
-Non-price factors.