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Balance of Trade Summarized

Summarize your understanding of both microeconomic and macroeconomic theory in a discussion of balance of trade.

What are the economic factors that affect balance of trade?

What is the effect of trade imbalances on national economies? On the global economic system?

What economic forces and mechanisms work to maintain trade equilibrium? What works against it?

How does the balance of trade affect the economic growth of individual nations?

How does the balance of trade impact business decisions?

Solution Preview

Some of the economic factors affecting balance of trade are exchange rate fluctuations, trade agreements and barriers, tariffs on import and export, inflation in the home country.

A negative balance of trade or deficit in the balance of trade would result in imposition of tariffs for importer goods and export promotion activities in the country. Also, there is a curb on government spending abroad to correct this deficit. Similarly, a positive balance of trade position will see increase in government spending abroad and higher imports.

Effect on the global economic system:

Trade imbalances can cripple economies in debtor nations when ...

Solution Summary

Some of the economic factors affecting balance of trade are exchange rate fluctuations, trade agreements and barriers, tariffs on import and export, inflation in the home country.

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