Net trade [2.2.5] Flashcards
What does the UK import/export ?
Cars
Vehicle parts
Strawberries
Tomatoes
Pig meat
These goods are sourced from abroad particularly in warmer countries
Why does the UK trade with other countries?
To obtain goods that cannot be produced in the UK, and that are not sold in domestic markets, The UK trades to meet demand.
What impact does trade have on the UK economy?
Can lead to a trade deficit if M>X, The value of the pound will also depreciate as it will be more common around the world if more money is spent abroad. More money is also leaving the circular flow of income.
How is trade important to the economy?
It can improve exports both quantity and quality. It can protect the UK economy the government use protectionism measures like tariffs and quotas
What is the impact of trade on AD?
Net trade is one of the key elements of AD. If the country runs a trade surplus X>M then AD increases, If a country runs a trade deficit X<M then will lead to a fall in AD. Importing contracts AD, Exports extend AD.
What is the impact of trade on employment?
Employment and wages will increase in export led industries, jobs and wages will fall in sectors that cannot compete with imports.
What is the impact of trade on inflation?
An increase in trade should lead to a fall in inflation as cheaper imports enter market higher imports prices and a fall in the exchange rate leads to cost push inflation.
What is the impact of trade on economic growth?
Increase trade should lead to an increase in AD resulting in growth for a country.
What are the influences on net trade?
Real wages - If real wages increase then consumer spending will also increase. This is likely to result in more imports to meet this demand especially if the country has a high propensity to import, demand for goods which are at a shortage in the UK. Fall in Real income fewer imports.
Exchange rate - Changes in the value pf 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. If ER increases cheaper good from other countries businesses by cheaper raw materials. Fall in ER encourages as exports are cheaper
State of the world economy- UK businesses will be impacted by the amount of demand from other countries. If there is a recession in other countries then the demand will fall for our exports. Improvement in state of world economy improves imports and exports.
Degree of protectionism - Some countries use tariffs and quotas to protect their own industries by restricting imports
Other countries encourage free trade with no restrictions. Signing free trade deals should encourage and increase trade, government subsidies to encourage more competitive exports.
Non price factors - Countries are more competitive due to:
Quality of product, reliability, design
Marketing and branding
Innovation and research development
Lower costs.
What happens to the AD graph if there is an increase in imports?
AD curve shifts to left new equilibrium.
What happens to the AD graph if there is an increase in exports?
AD curve shifts to the right new equilibrium. Does not affect the price level
