Lesson 17 - Net Trade

Question 1

If a country runs a trade surplus ( more exports than imports) what will happen to aggregate demand?

Answer 1

Aggregate demand will increase

Question 2

If a country is running a trade deficit ( more imports than exports) what will happen to aggregate demand?

Answer 2

Aggregate demand will decrease

Question 3

What is the impact of increased trade on inflation?

Answer 3

Increased trade should lead to a fall in inflation as goods will be imported cheaper leading to a fall in prices.

Question 4

Higher import prices and a fall in the exchange rate ( pound getting weaker) will lead to what type of inflation?

Answer 4

Cost push inflation

Question 5

If there is an increase in real income, what will be the impact on trade?

Answer 5

If there is an increase in real income then consumer spending will increase. This will lead to an increase in imports to meet this demand.

Question 6

List 3 of the 5 factors influencing net trade

Answer 6

.Real income
.Exchange rates
.State of the world economy
.Degree of protectionism
.Non-price factors

Question 7

How does real income have an affect on trade?

Answer 7

If real wages increase then consumer spending will also increase. This will lead to more imports to meet this demand. The UK has a high propensity to import

Question 8

What is the impact of variations in the exchange rate on trade?

Answer 8

Changes in the value of the currency will change the prices of imports and exports. If the pound falls in value, UK exports will become more competitive increasing sales of UK products overseas. Imports will fall as it will become more expensive to buy foreign goods. If the pound strengthens in value, imports to the UK will increase as its cheaper to buy foreign goods. Exports will fall as UK goods are less competitive.

Question 9

If there is a global recession, what will happen to the demand for UK goods.

Answer 9

It will fall due to a reduction in consumer spending globally. This will lead to a reduction in exports.

Question 10

How does the exchange rate have an affect on trade

Answer 10

Changes in the real value of the currency will impact the relative prices of imports and exports
A rise in the exchange rate will increase imports and reduce exports
A fall in the exchange rate will decrease imports and increase exports

Question 11

How does the state of the world economy affect trade?

Answer 11

UK businesses will be impacted by the amount of demand from other countries. If there is a recession then other countries demand for our goods will decrease

Question 12

Some countries use tariffs and quotas to protect their own industries, what impact does this have on trade?

Answer 12

This reduces trade as imports are more expensive so the goods are less competitive. This leads to a reduction in demand for the products leading to a reduction in imports.

Question 13

How does a degree of protectionism affect trade?

Answer 13

Some countries use tariffs and quotas to protect their own industries by restricting imports
Signing free trade deals should increase trade

Question 14

Give three reasons why some countries have an advantage in producing goods and are more competitive?

Answer 14

Quality of product, reliability, design
Marketing and branding
Innovation and research and development

Question 15

Give 3 non price factors which affect trade

Answer 15

.Quality of product-reliability and design
.Marketing and Branding
.Innovation and research and development