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Questions and Answers
What can affect the monetary balance of trade?
What can affect the monetary balance of trade?
- Government spending policies
- Exchange rate movements (correct)
- Unemployment rates
- Domestic interest rates
What is an example of a non-tariff barrier to trade?
What is an example of a non-tariff barrier to trade?
- Import quotas
- Environmental standards (correct)
- Customs duties
- Export subsidies
What does the physical balance of trade refer to?
What does the physical balance of trade refer to?
- Total Material Consumption (correct)
- Consumer price index
- Exchange rate fluctuations
- Gross domestic product
What do developed countries usually import from developing countries?
What do developed countries usually import from developing countries?
What can influence the prices of goods manufactured domestically?
What can influence the prices of goods manufactured domestically?
What is the main difference between monetary balance of trade and physical balance of trade?
What is the main difference between monetary balance of trade and physical balance of trade?
What could be considered a non-tariff barrier to trade?
What could be considered a non-tariff barrier to trade?
What can influence the prices of domestically manufactured goods?
What can influence the prices of domestically manufactured goods?
What do developed countries usually import from developing countries?
What do developed countries usually import from developing countries?
What can affect the availability of foreign exchange for paying for imports?
What can affect the availability of foreign exchange for paying for imports?
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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).
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