Aggregate Demand - Net Trade (X - M)

Question 1

Components of net trade

Answer 1

Real incomes
Exchange rates
Non-price factors
State of the world economy
Degree of protectionism

Question 2

As real incomes in the UK rise, demand for imports ______, So an increase in real incomes is expected to ________ (X - M), i.e. increase the UK’s current account deficit

Answer 2

Rises

Decrease

Question 3

An appreciation of the pound ___________ the price of UK goods relative to foreign goods. This leads to a fall in _______ and a fall in imports

Answer 3

Increases
Exports
Imports

Question 4

If other economies are in slowdown/recession we could expect net exports to ______

Answer 4

Fall

Question 5

A country can attempt to protect its exports by subsidising its domestic producers and/or taxing imports (tarrifs). This will increase net ________, as the price of _________ is lower and the price of _________ is higher. However if one country creates protectionist barriers, its trading partners may be tempted to retaliate with barriers of their own,
negating the effect.

Answer 5

Exports
Exports
Imports