10 Questions
What can affect the monetary balance of trade?
Exchange rate movements
What is an example of a non-tariff barrier to trade?
Environmental standards
What does the physical balance of trade refer to?
Total Material Consumption
What do developed countries usually import from developing countries?
Raw materials
What can influence the prices of goods manufactured domestically?
Responsiveness of supply
What is the main difference between monetary balance of trade and physical balance of trade?
Monetary balance of trade considers the value of trade, while physical balance of trade considers the quantity of raw materials.
What could be considered a non-tariff barrier to trade?
Environmental standards imposed on imported goods
What can influence the prices of domestically manufactured goods?
The availability of raw materials and other inputs
What do developed countries usually import from developing countries?
Raw materials
What can affect the availability of foreign exchange for paying for imports?
Exchange rate movements
Study Notes
Balance of Trade
- The balance of trade, also known as the commercial balance or net exports (NX), is the difference between the monetary value of a nation's exports and imports over a certain period.
Trade Surplus and Deficit
- A trade surplus, positive balance, or "favourable balance" occurs when a country exports a greater value than it imports.
- A trade deficit, negative balance, "unfavourable balance", or "trade gap" occurs when a country imports a greater value than it exports.
Relationship with Current Account
- The balance of trade forms part of the current account, which includes other transactions such as income from the net international investment position and international aid.
- A surplus in the current account increases a country's net international asset position, while a deficit decreases it.
Factors Affecting the Balance of Trade
- The cost of production (land, labor, capital, taxes, incentives, etc.) affects the balance of trade.
- The trade balance is identical to the difference between a country's output and its domestic demand (the difference between what goods a country produces and how many goods it buys from abroad).
Test your knowledge of international trade with this quiz on the balance of trade. Explore the concepts of trade surplus, trade deficit, and the impact of net exports on a nation's economy.
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