Lesson 17 - Net Trade

Question 1

How will a change in trade affect AD?

Answer 1

Trade surplus —> AD rises
Trade deficit —>AD falls

Question 2

How will an increase in trade affect employment?

Answer 2

Reduced by outsourced labour
Increase in export led jobs
Industry that cannot compete with exports will suffer

Question 3

How will an increase in trade affect inflation?

Answer 3

Inflation rises (Demand pull)
Due to high import prices + exchange rate

Question 4

How will an increase in trade affect economic growth?

Answer 4

Increased trade —> AD rises —> Growth

Question 5

What are the 5 factors that affect net trade?

Answer 5

Real income
Exchange rate
Protectionism
State of World Economy
Non-Price Factors

Question 6

How does real income affect net trade?

Answer 6

Increase causes rise in consumer spending
Likely to increase imports to meet demand (Especially if high propensity to import)

Question 7

How does the exchange rate affect net trade?

Answer 7

High ER, imports rise + exports fall
Low ER, imports fall + exports rise

Question 8

How does protectionism affect net trade?

Answer 8

Protectionism strictly regulates + limits foreign trade
More protectionism, less imports

Question 9

How does the state of the world economy affect net trade?

Answer 9

Recession overseas, demand for UK produce falls
Successful economies benefit each other

Question 10

How do non-price factors affect net trade?

Answer 10

Aim to make nation more competitive
E.g., Product quality, reliability, design
Marketing + branding
Innovation, research + development