Trade and Exchange rates Flashcards
Definition of exports
UK produced goods and services sold to foreign buyers that generate an injection of income into the UK circular flow
Definition of Imports
Foreign goods and services bought by UK citizens that result in a leakage of income from the UK circular flow
What is net exports
It is the overall difference between the exports and imports
Can be negative or positive
What happens when exports is bigger than imports
It is a trade surplus and this will cause an net injection of funds into the UK economy
Causes a shift right of the AD curve
What happens when imports in bigger than exports
There is a trade deficit and this will result in a net leakage of funds out the economy
There is a shift left of the AD
What determines the balance of trades
Changes in income
The exchange rate
Relative prices of exports and imports
The quality of the product
Protectionist measures
How does income affect balance of trade
When income rises, more imports are bought as they are normal goods
Changes in UK incomes doesn’t affect exports directly but can slightly as when the UK get richer, so do other countries
What are exchange rates
This is the price of one currency expressed in terms of another
How do exchange rates affect balance of trades
When the exchange has a low value then it is cheap for people to buy our exports but expensive to buy imports
When the exchange rate has a high value the it is expensive to buy our exports but cheap to buy imports
What is it called when a currency loses value
Depreciating
What is it called when a currency gains value
appreciating
How does relative prices of exports and imports affect the balance of trades
The price of goods before the exchange rates affect the demand for them
This is affected by:
Domestic costs
Demand for good
Inflation rate
How does the quality of goods affect balance of trades
The better the quality of goods, the higher demand for the exports
How does protectionist measures affect balance of trades
Countries restrict the amount of imports in the country through tariffs, subsidies, Quotas and domestic regulations
What is the UK’s trade balance
Deficit
