4.1 - Balance of Trade Flashcards
What is the balance of trade?
Net trade
Exports - Imports (X-M)
Why is balance of trade significant?
Largest component of current account
What is a balance of trade surplus?
Exports > Imports
What is a balance of trade deficit?
Exports < Imports
When is it ideal to run a trade surplus?
Recessional phase
Creates jobs + elevates demand
When is it ideal to run a trade deficit?
Expansionary phase
Due to increased imports + lower prices (Competition)
What are the 3 key reasons why the trade balance is important?
Macroeconomy
Regional disparities
Employment
How does trade balance effect the macroeconomy?
Exports are injection into circular flow
Multiplier amplifies impact of exports
Imports => Demand Pull
How does trade balance effect employment?
Certain sectors rely on exports/imports
E.g., Secondary sector highly export dependent
How does trade balance effect regional disparities?
Manufacturing/export led regions rely on surplus
May fall behind if balance is poor
Why may a deficient balance be positive?
Consumer prices + variety
Imports may be investments - Growth
Exchange rate will fall to correct balance
Why may a trade deficit be negative?
Infers loss of competitiveness
Loss of manufacturing jobs - Structural unemployment
Leads to CF withdrawals, reduces employment
