(H2E_Macro) Balance of Trade KT

Question 1

A summary record of all the international transactions between the residents of a country and the rest of the world over a period of time, usally one year

Answer 1

Balance of payments

Question 2

Overall balance of BOT in goods + BOT in services + Primary income balance + secondary income balance

Answer 2

Current account

Question 3

Records the flow of funds associated with the acquisition or disposal of fixed assets

Answer 3

Capital and financial account

Question 4

Calculated by summing the current account balance with the capital and financial account balance

Answer 4

Overall balance

Question 5

An attempt to separate autonomous from accommodating transactions and shows how monetary authorities have dealt with/accommodated the net currency flow

Answer 5

Official reserves

Question 6

Exists if total international receipts from exports is equal to its international payments for imports in a given year, inflow = outflow

Answer 6

Balance of trade equilibrium

Question 7

Avoidance of large and persistent BOT deficit/having an improved BOT surplus

Answer 7

Favourable BOT

Question 8

Occurs when total international recepits from exports of goods/services is less than international payments from imports of goods/services in a good year

Answer 8

BOT deficit

Question 9

Refers to the amount of domestically produced goods that must be given up in exchange for one unit of foreign good, measured in an index which the base is 100

Answer 9

Terms of trade

Question 10

Expenditure reducing policy, involves raising taxes to reducing government expenditure and decreasing disposable income and decreasing total import expenditure = fall in consumption expenditure

Answer 10

Contractionary fiscal policy

Question 11

Expenditure reducing policy, raises the level of interest rates

Answer 11

Contractionary monetary policy

Question 12

Expenditure switching policies, Central banks can choose to lower the value of their exchange rate relative to other countries to resolve the deficit = depreciation of their currency

Answer 12

Exchange rate policy

Question 13

Raises the level of interest rates -> increasing cost of borrowing money for consumption/investment -> reducing the level of consumption and investment -> fall in NY -> fall in Dd imports = fall in total import expenditure

Answer 13

How does a contractionary monetary policy reduce a BOT deficit?

Question 14

Reducing government expenditure and decreasing disposable income and decreasing total import expenditure = fall in consumption expenditure

Answer 14

How does a contractionary fiscal policy correct a BOT deficit?

Question 15

Depreciation of a country’s currency -> exports to become cheaper in terms of foreign currency/imports become more expensive -> increasing foreign demand for country’s exports/domestic consumers switch from imports to domestic goods

Answer 15

How does exchange rate correct a BOT deficit?

Question 16

Done through tariffs that discourage the expenditure on imports y increasing rice of import), quotas (Limit volume or supply of a foreign produced good over a specific period of time), embargoes (total government bands on certain G/S)

Answer 16

Import controls

Question 17

Tariffs make price of imports rise, reducing the Qdd of imports, showing domestic susbstitutes as relevantly cheaper = reducing import expenditure + reduces BOT deficit

Answer 17

How does tariffs help to correct BOT?