Economics Growth And The Balance Of Payments

Question 1

How may economic growth and the balance of payments conflict

Answer 1

A period of fast growth may come into conflict with the balance of payments

Question 2

What does the conflict between economic growth and the balance of payments depend on

Answer 2

The YED for traded goods and services

Question 3

Policies to improve the trade balance at a time of economy growth

Answer 3

• supply-side policies
• XR depreciation
• sound/effective macro economic policies

Question 4

Supply side policies to improve the trade balance at a time of economic growth

Answer 4

Labour productivity
Incentives to boost R&D
Increase investment in export sectors

Question 5

XR depreciation to improve the trade balance at a time of economic growth

Answer 5

A depreciation makes exports more price competitive and imports more expensive (in theory).
But the effects are dependent on PED

Question 6

Sound/effective macro economic policies to improve the trade balance at a time of economic growth

Answer 6

Monetary policy to keep inflation low relative to the inflation of major trading competitors.
Infrastructure investment to increase export competitiveness.