Th4.1: Impacts of Changes

Question 1

What are the three impacts of changes?

Answer 1

balance of payments
improvement in the terms of trade
export and import revenues

Question 2

Balance of payments - elastic

Answer 2

if PED of exports and imports is inelastic, a favourable movement in terms of trade would improve the current account on the balance of payment

Question 3

Balance of payment - inelastic

Answer 3

if PED of imports and exports is inelastic, a favourable movement in terms of trade would worsen the current account on the balance of payments

Question 4

Improvement in the terms of trade

Answer 4

An improvement in the terms of trade is likely to lead to a fall in GDP and a rise in unemployment, since if it caused by a rise in export prices, exports will fall and if it caused by a fall in import prices, imports will rise - both cause reduction in production within country and so fall in jobs and output

Question 5

However, a long term decline in the terms of trade suggests…

Answer 5

a long term decline in the living standards as less imports can be bought

Question 6

EaIR: For an improvement to be beneficial…

Answer 6

export revenues must increase

Question 7

EaIR: If an improvement has occurred due to an increased demand for exports, then…

Answer 7

this will be beneficial to the country

Question 8

EaIR: What two things will be beneficial to a country?

Answer 8

if an improvement has occurred due to increased demand for exports
if a country deterioration is caused by an improvement in international competitiveness

Question 9

EaIR: What is more important than the price alone?

Answer 9

export and import revenues