International Trade

Question 1

Definition of international trade

Answer 1

the exchange of commodities between countries of the world.

Question 2

reasons for international trade

Answer 2

-Differences in natural resources are a reason for countries to trade.
-Differences in demand for certain goods encourage international trade. Some countries demand more of a good than others.
-Economies of a scale in production import on trade.
-Government policies such as taxes/subsidies promote international trade

Question 3

Benefits of international trade

Answer 3

-Provides a greater range of products and services available to a country.
-Allows a country to develop export industries which provide employment.
-Encourages competition which enhances quality and lower prices.

Question 4

Drawbacks/problems of international trade

Answer 4

Competition- local products compete with foreign products in the same market place.
Working products - in race for the lowest price, workers face adverse working conditions like poor lighting, poor bathroom facilities,lowered wages and reduced breaks.
Environmental damage-the use of pesticides, fertilizers have increased. Large corporate farms use pesticides to speed up and improve production.
Job loss-competition for the best price can lead to job loss through outsourcing.

Question 5

Define balance of payments

Answer 5

Balance of payments- is a record of financial transactions between one country and its trading partners.

Question 6

Definition of visible imports and exports

Answer 6

goods that we can see or touch. e.g soft drinks, footwear

Question 7

Definition of invisible imports and exports

Answer 7

services e.g tourism,insurance

Question 8

Favourable balance in the BOP or a BOP surplus

Answer 8

A country recorded more inflow of foreign exchange (exports) than outflows (imports)

Question 9

Unfavourable ( adverse balance in the BOP or a BOP deficit

Answer 9

A country recorded more outflows of foreign exchange (imports) than inflows( exports)

Question 10

Main components of the BOP

Answer 10

1.Current Account
2.Capital Account
3.Official Financing

Question 11

Definition of Current Account

Answer 11

The exchange of goods and services is recorded.

Question 12

Balance of Trade

Answer 12

The difference between a country’s visible exports and imports

Question 13

Terms of Trade

Answer 13

an expression for the rate or ratio at which one commodity is exchanged for another.

Question 14

Definition of capital account

Answer 14

The capital account records inflows and outflows with respect to short-term, medium-term and long-term investment.

Question 15

Definition of Official Financing

Answer 15

how a deficit or surplus was financed

Question 16

Correcting an adverse BOP- to finance a BOP deficit (short-term)

Answer 16

-Borrowing from other Central Banks
-Borrowing from the International Monetary Fund
-Exchange control
-Drawing down reserves
-Importing on credit

Question 17

To correct or address a BOP deficit (long-term)

Answer 17

Devaluation- this is lowering the value of a country’s currency. Makes imports more expensive and exports cheaper.
Tariffs- tariffs are protective taxes placed on imports.This will result in an increase in the price of imports and imports will decrease.
Quotas- this specifies the maximum quantity of a commodity permitted into the country from abroad per unit of time.
Import control- a complete ban on a particular item.

Question 18

Definition of national income/national product

Answer 18

National income/national product- the total output of a country over a period of time measured in terms of the money value of the total production of goods and services.

Question 19

Reasons for calculating national income

Answer 19

-allows them to compare the flow of goods and services in n year to another. Can compare economic position of different countries.
-national income figures can give some indication of standard living of the people in the country from year to year
-national income figures indicate the rate of the nation’s income is growing so government can plan the economy and business people can plan future investment.

Question 20

Ways to measure national income

Answer 20

-the factor-earnings or income-approach- we sum the dollar earnings of the factors of production.
the expenditure method-we combine the spending of the five key segments in an economy. The exports( added together) an imports is subtracted from the total.
-the output approach- we add up the value of the final output making the necessary adjustments to prevent double counting.

Question 21

definition of gross domestic product

Answer 21

the total value of all goods and services produced in a country over a given period of time.

Question 22

definition of gross national product

Answer 22

the total value of goods and services produced by domestically owned and controlled factors of production

Question 23

definition of net national product

Answer 23

the gross national product minus depreciaton. Th process by which an asset loses value over time.

Question 24

definition of personal income

Answer 24

calculated by subtracting profits retained by businesses, business taxes, social security contributions and adding transfer payments.

Question 25

definition of disposable income

Answer 25

we subtract the personal taxes on income, inheritance and personal property to the government by householders.