2.2.5: Net Trade (X-M)

Question 1

How does real income influence net trade?

Answer 1

-Net trade decreases,as high real income tends to result in increased imports as AD increases.
-However, if real income increases due to export-led growth, then net trade increases.

Question 2

How does exchange rates influence net trade?

Answer 2

-A strong currency makes imports cheap, and exports less appeasing (as it costs more overseas).
-Net trade decreases, as imports increase and exports decrease.
-The elasticity of imports and exports is a factor.

Question 3

How does the state of the world’s economy influence net trade?

Answer 3

-If the UK’s main export country is doing well, then UK exports (and net trade) are likely to rise.

Question 4

What is protectionism?

Answer 4

Government policies that restrict international trade to protect domestic industries.

Question 5

How does degree of protectionism affect net trade?

Answer 5

-Tariffs, quotas and technical barriers are introduced to make selling goods more difficult.
-If there is high protectionism on imports, imports will decrease.
-If there is high protectionism on exports, exports will decrease.

Question 6

What are the non-price factors of net trade?

Answer 6

-Quality & design.
-Marketing.

Question 7

How does non-price factors influence net trade?

Answer 7

-If UK goods are of high quality & design, exports will increase, as foreign demand for UK goods increase (increasing net trade).
-If UK goods are well-marketed, people have a stronger desire to buy UK goods (increasing net trade).

Question 8

What are the factors what influence net trade?

Answer 8

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