Description
Trade Balance and Exchange Rates
A balance of trade (trade balance) is the difference between the monetary values of exports and imports of a country’s economic output over a given period of time. Trade balance can be positive (favorable) when the value of exports is greater than the value of imports. The positive trade balance is also called trade surplus. On the other hand, if the value of imports is greater than the value of exports, the trade balance indicates trade deficit.
Trade balance affects the Gross Domestic Product (GDP) of a country because net export is a component of the GDP. Recall GDP = C + I + G + Nx
Trade balance also affects the exchange rate of a country’s currency. Supply and demand for foreign currency result in changing prices of a currency. The price of a currency changes as demand for a foreign currency changes.
Based on the above summary and the detailed descriptions of the balance of payments, exchange rates and trade deficits issues in the textbook (Chapter 39) discuss the following questions.
Explanation & Answer
Review
Review
24/7 Homework Help
Stuck on a homework question? Our verified tutors can answer all questions, from basic math to advanced rocket science!