Macro - Net Trade (X-M)

Question 1

Real incomes affect on the net trade balance?

Answer 1

An increase in real incomes will cause the demand for goods/services to increase, and due to the majority of the goods purchased are imported this will lead to greater imports worsening the UK’s net trade balance.

Question 2

Exchange rates affect on the net trade balance?

Answer 2

A strong exchange rate makes imports cheaper and exports more expensive therefore demand for imports will increase whilst demand for exports will decrease, this will overall result in a worsening of the UK’s net trade balance.

Question 3

The state of the worlds economy affect on the net trade balance?

Answer 3

An improvement in the economic performance of countries abroad often results in an increase in real incomes abroad. This increases the demand for goods/services leading to increased exports and then improving the net trade balance.

Question 4

Degree of protectionism’s affect on the net trade balance?

Answer 4

If there is a strong degree of protectionism abroad, such as quotas and tariffs on UK exports they will become less competitive price wise leading to exports falling and a worsening of a net trade balance.

Question 5

Non-price factors affect on the net trade balance?

Answer 5

The main non-price factor is the quality of the good/service that the domestic country sells. If there are high then the number of exports may rise as they become more competitive leading to an increase in a net trade balance.