2.2.5 Net Trade (X-M) Flashcards
Exports are counted as a, what in the circular flow of income
Injection
What are the 6 factors that affect the demand for exports
- Real income
- The relative price of exports in the world market
- The exchange rate
- Non-price demand factors e.g. design and branding, product quality
- Strength of aggregate demand in key export markets i.e. state of world economy
- Level of protectionism e.g. use of tariff, quotas, and other trade restrictions
how does real income affect demand for exports
if domestic income is high, demand for imports is likely to rise
i.e. cheaper products, people will have more money so will be able to spend more
global market may offer more variety/choice in goods/services
What will affect the relative prices of exports in world markets
Affected by domestic inflation
shipping/transport costs
fluctuations in world commodity prices
How will exchange rate affect the demand for exports
A stronger currency makes exports more expensive and imports cheaper
A weaker currency makes exports cheaper and imports more expensive
How will the Strength of aggregate demand in key export markets affect demand for exports
If key exports market are booming, then they are likely to demand more exports
What is a tariff and quotas
and give examples of non-tariff barriers
Tariff is a tax on imports
quota is a physical limit on the number of imports allowed into a country
non-tariff barriers can be restriction of product quality
in 2017, the UK’s export of goods and services totaled £X billion
Imports totaled £y billion
X= 618
Y=614
means Uk runs a trade deficit
How will net trade balance effect aggregate demand
A trade surplus means that value of exports is greater than value of imports - AD will increase
Trade deficit means that value of imports is greater than the value of exports - AD will fall
How will trade impact employment and wages, if importing is increasing
Employment and wages will increase in export-led industries if imports are high
Jobs and wages will fall in industries that cannot compete with imports (domestic industries)
How will trade affect inflation, if importing is increasing
What will happen to inflation, if costs of importing increases due to a depreciating exchange rate
increased trade should lead to a fall in inflation as cheaper imports enter the market
High import prices and a fall in exchange rate will lead to cost-push inflation
How will trade affect economic growth
Increased trade should lead to an increase in aggregate demand resulting in growth for a country
How will the state of the global economy and a recession in a major trading partner affect trade
UK businesses will be impacted by the amount of demand from other countries
If there is a recession in other countries then demand will fall for our exports
How will the degree of protectionism affect trading
Some countries use tariff and quotas to protect their own industries by restricting imports
other countries encourage free trade with no restrictions
free trade deals should increase trade
How will non-price factors effect trade
Improvement to quality of products/market and branding/innovation and research development makes a country more competitive and hopeful increase trading
