2.2.5 Net trade (X-M) Flashcards
What is the net trade balance?
The net trade balance is the difference between the value of the exports and imports (X-M).
How is the net trade balance influenced?
The net trade balance is influenced by changes to real income, exchange rates, state of the world economy, and the degree of protectionism.
If the UK real income increases how does that affect exports and imports?
Exports: Little effect
Imports: Consumers purchase more
Trade balance: Weakens
If the real income increases abroad how does that affect exports and imports?
Exports: Foreigners purchase more UK products - exports increase
Imports: Little effect
Trade balance: Strengthens
If the UK £ appreciates how does that affect exports and imports?
Exports: Exports less expensive for foreigners - exports decrease
Imports: Consumers’ money goes further abroad - imports increase
Trade balance: Weakens
If the UK £ depreciates how does that affect exports and imports?
Exports: Exports less expensive for foreigners - exports increase
Imports: Consumers’ money goes further abroad- imports decrease
Trade balance: Strengthens
If the world economy booms how does that affect exports and imports?
Exports: Increase demand for UK exports
Imports: Little effect
Trade balance: Strengthens
If the world economy slow how does that affect exports and imports?
Exports: Decreased demand for UK exports
Imports: Little effect
Trade balance: Weakens
If the protectionism increases how does that affect exports and imports?
Exports: Depends on retaliation measures from other countries
Imports: Decreased demand for imports as they are more expensive
Trade balance: Strengthens
If the protectionism decreases how does that affect exports and imports?
Exports: Likely to increase
Imports: Increased demand for imports
Trade balance: Weakens
