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Questions and Answers
What is the balance of payment a record of?
What is the balance of payment a record of?
What is often accompanied by a balance of payment surplus?
What is often accompanied by a balance of payment surplus?
What can a balance of payment deficit indicate?
What can a balance of payment deficit indicate?
What is the balance of payment often expressed as?
What is the balance of payment often expressed as?
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What can result from a balance of payment deficit?
What can result from a balance of payment deficit?
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What is the primary purpose of a tariff?
What is the primary purpose of a tariff?
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What is dumping in the context of international trade?
What is dumping in the context of international trade?
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What is the effect of currency devaluation on a country's exports?
What is the effect of currency devaluation on a country's exports?
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What is the purpose of an embargo?
What is the purpose of an embargo?
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What is the benefit of protectionism for infant industries?
What is the benefit of protectionism for infant industries?
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Study Notes
Balance of Payments
- A record of all economic and financial transactions between a country's residents and the rest of the world
- Can be simplified as exports (in monetary value) minus imports (in monetary value)
Balance of Payments Surplus
- Often accompanied by:
- Economic growth
- High dependency on exports
- Demand pull inflation
- May indicate the country has used protectionist measures to discourage imports
Balance of Payments Deficit
- Results in:
- Rise in incomes in the domestic economy
- Leakage from the circular flow of income
- National debt could fall
- Unemployment if there's more demand for imports
Trade Protectionism
- Protectionism can create thousands of jobs by reducing competition from foreign firms, allowing domestic industries to grow.
- Infant industries can be protected, giving them time to develop and become competitive.
- A country can become more self-sufficient by protecting its industries, reducing dependence on foreign goods.
Dumping
- Dumping occurs when a firm sells goods abroad at a lower price than in its home country.
- This can be done to sell excess output without affecting the home market price.
Types of Trade Protection
- Tariffs: a tax on imports, making them more expensive than domestic goods.
- Quotas: a physical or monetary limit on imports, restricting the amount of goods allowed into the country.
- Embargo: a complete ban on trade with a specific country.
- Subsidies: government assistance to exporters, allowing them to lower prices in foreign markets.
- Administrative Barriers: tedious paperwork or delays that hinder trade.
- Currency Devaluation: a country can increase the attractiveness of its exports by devaluing its currency, making it cheaper for foreigners to buy.
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Description
Understand the concept of balance of payments, its calculation, and the implications of a balance of payment surplus on a country's economy.
