Global Trade Imbalances

Question 1

Significance of global trade imbalances part 1

Answer 1

• International trade has meant countries have become more interdependent, a surplus or deficit on current account could indicate an unbalanced economy, could mean country is too reliant on other economies for growth = difficult to attract long term financial flows = unsustainable.
• Imbalance suggests reliance on performance of other countries - as seen in the UK 2008 crisis.

Question 2

Significance of global trade imbalances part 2

Answer 2

• Could be difficult to finance the deficit in the long run, in eurozone the fixed exchange rate means they can’t devalue currency to restore their level of international competitiveness
• Stable = less vulnerable to extreme shocks.

Question 3

Capital transfers

Answer 3

transfers of the ownership of fixed assets

Question 4

Financial account

Answer 4

Investment flows