Net Trade Flashcards
What is real income?
Income after taking inflation and purchasing power into account.
What are the impacts of an increase in real incomes on the economy (2)?
1) Consumer demand for UK goods/services will increase, boosting AD.
2) Imports will increase, as consumers demand more foreign goods/services, leading to a flow of money out of the economy - a negative contribution to AD.
What is net trade?
Exports - imports.
What is the significance of a strong pound on exports and imports?
1) Imports rise as consumers have greater spending power when purchasing from abroad.
2) Demand for UK exports fall, as they are more expensive (less competitive) abroad.
What is the significance of a weak pound on exports and imports?
1) Imports will fall, as the pound buys less abroad. Consumers and firms will spend less, or switch to domestic goods.
2) Demand for UK exports will rise, as UK goods are cheaper (more competitive) abroad.
Does the UK run a net trade surplus or deficit.
The UK has a trade surplus in services but a trade deficit in goods. Overall, the UK runs a net trade deficit.
What are some non-price factors that influence imports and exports (3)?
1) Reputation for certain goods/services. E.g. the UK’s reputation for financial services or France’s reputation for champagne produced in the Champagne reason.
2) The geography of nations. E.g. the UK will have to import items such as bananas from tropical climates.
3) Political relationships between nations. E.g. the USA and the USSR did not trade during the Cold War.
What is a tariff?
A tax on imports.
What is a quota?
A limit on a certain good.
How does the state of the world economy influence net trade?
If nations who the UK export to see economic growth, UK firms will benefit by seeing a rise in exports.
Are exports beneficial or detrimental to AD?
Beneficial.
Are imports beneficial or detrimental to AD?
Detrimental.
Define protectionism
The theory or practice of shielding a country’s domestic industries from foreign competition.
How does protectionism influence net trade?
To obtain a positive balance of trade, countries will try to protect domestic firms by limiting the quantity of imports through a range of protectionist strategies, like tariffs and quotas. Trade blocs, such as the EU or NAFTA, have agreements to limit protectionism.
Define trade bloc
A trade bloc is a type of intergovernmental agreement, where barriers to trade are reduced or eliminated among the participating nations/states.
