2.2.5 Net Trade

Question 1

What are exports ?

Answer 1

act of selling goods and services to another country.

Question 2

What are imports ?

Answer 2

The act of buying goods and services from another country.

Question 3

Why are high imports a bad thing for the economy ?

Answer 3

Money spent on imports (M) counts as a leakage/withdrawal from the circular flow of income.

Question 4

What is the trade balance ?

Answer 4

The difference between the value of exports (X) and imports ( M).

Question 5

What is a trade surplase ?

Answer 5

When the value of imports is greater than the value of exports ( X < M)
Therefore this add to net exports and leads to an increase to AD.

Question 6

What is a trade deficit ?

Answer 6

When the value of imports is greater than the value of exports, the trade balance is in deficient. This subtracts from net exports, leading to a reduction in AD.

Question 7

Is the UK running a trade deficit or a trade surplus ?

Answer 7

Trade surplase

Question 8

What are the factors that affect Net trade ?

Answer 8

Real income
Exchange rates
State of the world economy
Degree of protectionism
Non-price factors

Question 9

Explain how real income affects net trade.

Answer 9

The UK has a relatively high ‘ marginal propensity to consume’ so as UK incomes rise, there is more demand for imported goods.