Trade Balance

Question 1

Explain the meaning of Trade Balance

Answer 1

the difference between the value of its exports and the value of its imports

Question 2

Explain the difference between Exports and Net Exports

Answer 2

Net exports are defined as a country’s total exports minus its total imports

Question 3

Explain the effect of an increase in Imports on AD

Answer 3

A weaker pound makes imports more expensive, which could further reduce AD as imported goods become less affordable for UK consumers

Question 4

Explain the impact of an increase in real incomes on the trade balance

Answer 4

Higher real incomes typically lead to increased consumption, including imported goods, potentially worsening the trade balance

Question 5

Explain the impact of depreciation of the £ on the trade balance

Answer 5

imports become more expensive, so locals often buy fewer imported goods

Question 6

Explain whether a depreciation of the £ would have a bigger effect if the demand for UK elastic is price elastic or price inelastic

Answer 6

the effect on the UK’s current account would be less than if exports were price elastic

Question 7

Explain the effect of a recession in a major trading partner on the UKs trade balance

Answer 7

aggregate demand tends to fall, causing consumers to demand less exports from the UK

Question 8

Explain the effect of increasing protectionism on the UK’s trade balance

Answer 8

Higher tariffs will definitely lead to lower exports, lower imports and a lower rate of economic growth