2.2.5 Net Trade (X - M)

Question 1

If real income rises, what happens to the demand of imported goods?

Answer 1

Imported goods’ demand rises, lowering AD in the economy

Question 2

How does the exchange rate influence the net trade?

Answer 2

If the strength of the pound increase, it makes imports cheaper, therefore more attractive to consumers. On the contrary, exports become more expensive and less attractive to consumers abroad, lowering AD

Question 3

How does the state of the world economy affect the net trade?`

Answer 3

A global recession would causes exports to fall as other countries are less willing to buy UK products

Question 4

How does protectionism affect the net trade?

Answer 4

Many countries would impose tariffs on imported goods to deter consumers from buying them and instead buying UK produced goods to protect jobs and increase AD

Question 5

In 2018 what happened between the USA and China?

Answer 5

a trade war was threatened, Trump wanted to impose tarrifs on Chinese products to protect US jobs

Question 6

What is the likely change in value of exports going to have economic growth?

Answer 6

• an injection into the circular flow on income

- increase in the productive capacity of an economy