International Trade

1. International Trade

2. Exports & imports • Exports = goods & services sold to another country. • Imports = goods bought from another country

3. Visible & invisible Trade • Visible trade = tangible goods - ones you can touch. • Invisible trade = intangible things – services (finance etc).

4. Balance of Trade value of visible exports – value of visible imports Balance of Trade surplus Exports larger than imports Balance of Trade deficit Imports larger than exports

5. Balance of Payments All transactions that a country has with other countries current account + capital account + financial account

6. Current Account • Trade - visible • Services - invisible • Income • adds wages from residents working abroad, subtracts foreign workers wages. • adds profits & dividends sent back by firms abroad, subtracts these leaving the country • Transfers • Aid sent & received between governments, taxes/payments to/from E.U. etc

7. Capital Account • Ownership/sales of fixed assets • (foreign buyers of a house – money entering the country – added to capital account) Financial Account • Profits on capital, shares & loans – dividends, interest payments.

8. Correcting B.O.P. deficit Balance of trade deficit • Deflation – ↓ AD through ↑ taxes & ↓ public spending. This should ↓ imports as there is less money to spend – but it may also affect domestic industry → ↑ possible unemployment . • Protectionism – ↑ measures that stop/reduce imports (tariffs, quotas, subsidies, embargos). • Devaluation – ↓ value of pound →↑ cost of imports & ↓ cost of exports. Financial Account deficit • Interest rates – ↑ interest rates → ↑ hot money as people can earn more on savings.