2.2.5 Net trade (X-M)

Question 1

What are the influences on net trade

Answer 1

Real income
Exchange Rates
State of world economy
Protectionism

Question 2

How does real income effect net trade

Answer 2

imports are usually normal goods, so high incomes will increase imports which is worsen net trade balance, this is why there is cyclical deficit in a boom

Question 3

How does exchange rates effect net trade

Answer 3

A strong pound means exports are expensive and imports cheap so high, this means low or negative net trade, unlesss competition is based on quality rather than price.

Question 4

How does the state of the world economy effect net trade

Answer 4

economic performance of other countries effects net trade balance in UK, e.g slow growth in Europe decreases UK exports

Question 5

How does protectionism effect net trade

Answer 5

restrictions on free trade like tariffs mean less imports