a) Influences on net trade

• define the net trade balance

• the difference between the value of revenue from exports and expenditure on imports

• state what is meant by a strong trade balance

• state what is meant by a weak trade balance

• value of revenue from exports > value of expenditure on imports

• value of expenditure on imports > value of revenue from exports

• state the four factors that influence the net trade balance

• real income nationally and abroad

• the exchange rate

• the state of the world economy

• the degree of protectionism nationally

• describe the effect on the net trade balance when real income increases in the UK

• describe the effect on the net trade balance when real income increases abroad

• higher incentive to consume nationally → higher demand for foreign imports nationally

• weaker trade balance

+

• higher incentive to consume abroad → higher demand for UK exports abroad

• stronger trade balance

• describe a high exchange rate’s effect on the net trade balance

• describe a low exchange rate’s effect on the net trade balance

• the £ appreciates in value

• expensive exports to foreign firms → lower demand for UK exports abroad

• higher value of UK consumer’s money → higher incentive to export to the UK

• weaker trade balance

+

• the £ depreciates in value

• cheaper exports to foreign firms → higher demand for UK exports abroad

• lower value of UK consumer’s money → lower incentive to export to the UK

• stronger trade balance

• describe the effect on the net trade balance when the world economy slows

• describe the effect on the net trade balance when the world economy booms

• lower incentive to consume abroad → lower demand for UK exports abroad

• weaker trade balance

+

• higher incentive to consume abroad → higher demand for UK exports abroad

• stronger trade balance

• define protectionism

• the practice of protecting a country’s domestic industries from foreign competition by taxing imports

• describe a low protectionism’s effect on the net trade balance

• describe a high protectionism’s effect on the net trade balance

• cheaper imports from foreign firms → higher demand for foreign imports nationally

• weaker trade balance

+

• expensive imports from foreign firms → lower demand for foreign imports nationally

• stronger trade balance