2.3.2 Net trade balance

Changes of real income impact on net trade balance

• If economy is doing well. people spend more on imports and MPM increases

• In recessions, people spend less on imports, MPM decreases

Changes in exchange rate impact on net trade balance

• If value of currency increases, exports are more expensive for foreigners and exports fall BUT rise in imports, as imports are cheaper

• If value of currency falls, exports are cheaper for foreigners and exports increase, but imports are more expensive, so imports decrease

State of the global economy impact on net trade balance

• If a country’s trading partners are doing well, exports will increase

• In recession, exports decrease

Major nations economies affect all countries no matter where they are

Degree of protectionism impact on net trade balance

Governments place additional taxes on foreign goods and services (tariffs)

• Higher tariffs = more expensive, lower demand = imports decrease

• If trading partners put tariffs on an economies goods, exports will decrease

Non-price factors effect on net trade balance

Goods and services that have unique qualities that are not just traded on price

• branding

• technology