Global Trade imbalances

Question 1

What are the causes of global trade imbalances?

Answer 1

Differences in the savings ratio
Exchange rates
Differences in competitiveness

Question 2

What are global trade imbalances?

Answer 2

Some countries in the world have very large trade deficits and others have very large trade surpluses

Question 3

What is the impact on the current account of having a high savings ratio?

Answer 3

Likely to be current account surplus

Lots of saving so not many imports

Question 4

What is the impact on the current account for China and the USA of Chinese fixing the value of their currency at a low rate against the US dollar? (purposefully making it weak)

Answer 4

China can export more because exports look cheaper and more attractive for the USA
Leads to a current account surplus

Question 5

How has Germany benefitted from being in the Eurozone?

Answer 5

Germany can sell high quality manufactured goods and the currency won’t change (appreciate)
Keeps the currency low and more competitive