International trade

balance of trade

any gap between a nation’s dollar value of its exports, or what its producers sell abroad, and a nation’s dollar worth of imports, or the foreign‐made products and services that households and businesses purchase

trade surplus

exports exceed imports

trade deficit

imports exceed exports

merchandise trade balance

the balance of trade looking only at goods

Current account balance

a broad measure of the balance of trade that includes trade in goods and services, a well as international flows of income and foreign aid

income payments

money received by U.S. financial investors on their foreign investments (money flowing INTO the U.S.) and payments to foreign investors who had invested their funds here (money flowing OUT of the U.S.). These are included because income is just as much an economic transaction as goods; it is just trade that is happing in the financial capital market

unilateral transfers

payments made by government, private charities, or individuals in which money is sent abroad without any direct good or service being received. This includes economic or military assistance from the U.S. government to other countries, spending abroad by charities to address poverty or social inequalities; in the U.S., this figure is usually negative

current account deficit

the country is a net borrower from abroad

positive account balance

country is a net lender to the rest of the world; trade surplus means an overall outflow of financial investment capital, as domestic investors put their funds abroad

level of trade

• tells how much of its production it exports.

  • Measured by the % of exports out of GDP; indicates how globalized an economy is o

  • Three factors that strongly influence a nation’s level of trade

    1. Size of its economy

    2. Geographic location

    3. History of trade

B

A trade surplus occurs when:
a) Imports exceed exports
b) Exports exceed imports
c) Foreign aid exceeds income payments
d) Unilateral transfers are positive

C

The current account balance includes all of the following EXCEPT:
a) Trade in goods and services
b) Foreign aid (unilateral transfers)
c) Government budget deficits
d) Income receipts from foreign investments

B

In 2015, the U.S. current account balance was -$113.7 billion. This indicates a:
a) Trade surplus
b) Trade deficit
c) Balanced budget
d) Net inflow of foreign aid

A

Which country had the highest current account surplus (as % of GDP) in 2015?
a) Germany
b) China
c) Sweden
d) Korea

B

The "national saving and investment identity" states that:
a) Imports must equal exports
b) Quantity supplied of financial capital equals quantity demanded
c) Government spending always exceeds taxes
d) Trade deficits are always harmful

B

If domestic investment rises while private and public savings remain unchanged, the trade deficit must:
a) Fall
b) Rise
c) Stay the same
d) Turn into a surplus

B

A trade deficit can be beneficial if the borrowed funds are used for:
a) Short-term consumption
b) Long-term investments (e.g., infrastructure)
c) Military spending
d) Tax cuts

C

The level of trade is determined by all of the following EXCEPT:
a) Size of the economy
b) Geographic location
c) Political ideology
d) History of trade

B

Which component is included in the financial account (not the current account)?
a) Exports of goods
b) Foreign direct investment
c) Income payments
d) Unilateral transfers

False

True or False: A trade surplus guarantees strong economic health.
a) True
b) False