Net Trade (2.2)

What is Real income?

The income of individuals adjusted for inflation

What is the impact of domestic income increasing?

Higher real incomes typically lead to increased consumption, including imported goods, potentially worsening the trade balance

What is an example of the effects of higher real incomes/increased domestic income?

The US, rising real incomes often correlate with increased imports from China and other countries

What is the impact of foreign income increasing?

Higher real incomes abroad can boost demand for exports from other countries, improving the trade balance

What is an example of the effects of higher real incomes/increased foreign income?

Economic growth in China has increased its imports from countries like Germany and Australia

What are exchange rates?

The value of one currency for the purpose of conversion to another

What is the impact of depreciation on the trade balance?

A weaker domestic currency makes exports cheaper and imports dearer, potentially improving the trade balance

What is the impact of appreciation on the trade balance?

A stronger domestic currency makes exports more expensive and imports cheaper, potentially worsening the trade balance

What is meant by the state of the world economy?

The overall health and trends of the global economy

An example of the effect of depreciation on the trade balance?

The depreciation of the British pound following Brexit initially boosted exports

An example of the effect of appreciation on the trade balance?

The appreciation of the Swiss franc has made Swiss goods more expensive abroad

What is the impact of global economic growth on the trade balance?

When the global economy is strong, demand for goods and services increases, benefitting exporting countries

What is the impact of global recessions on the trade balance?

During economic downturns, global demand drops, negatively affecting export dependent countries

Example of how global economic growth affects the trade balance?

The global economic boom in the early 2000s increased demand for exports from emerging markets

Example of how global recessions affect the trade balance?

The 2008 financial crisis reduced global demand for exports from countries like Germany and Japan

What is protectionism?

Government actions and policies that restrict international trade to protect local businesses and jobs

What is the affect of high protectionism on the trade balance?

Tariffs, quotas, and other trade barriers can reduce imports, potentially improving the trade balance but also risking retaliatory measures

What is the affect of low protectionism on the trade balance?

More open to trade policies can increase imports, potentially worsening the trade balance but promoting competition and efficiency

Example of how high protectionism affects the trade balance?

The US - China trade war saw increased tariffs, leading to reduced trade volumes

Example of how low protectionism affect the trade balance?

The European Union’s single market facilitates free trade member countries, increasing trade volumes

What are non price factors?

Aspects other than price that affect trade

What are the 3 non-price factors that affect the trade balance?

1. Quality and innovation

2. Branding

3. Trade agreements

How does quality and innovation affect the trade balance?

High quality, innovative products can maintain strong export performance despite price changes

An example of how quality and innovation can affect the trade balance?

Germany’s reputation for high-quality engineering supports strong export performance in the automotive and machinery sectors

How does branding affect the trade balance?

Strong brand recognition can sustain demand for exports

Example of how branding affects the trade cycle

Global demand for American technology brands like Apple.

How do trade agreements affect the trade cycle?

Agreements can reduce barriers and enhance trade flows

Example of how trade agreements affect the trade balance

The NAFTA boosted trade between the U.S, Canada, and Mexico.

What does NAFTA stand for?

The North American Free Trade Agreement