Balance of Trade
Balance of trade refers to the difference between a country's exports and imports of goods. A positive balance of trade, or trade surplus, occurs when exports exceed imports, while a negative balance, or trade deficit, occurs when imports surpass exports. It is an important indicator of a country's economic health and its relationship with other nations.
6 Key excerpts on "Balance of Trade"
eBook - ePub- William H. Beveridge(Author)
- 2014(Publication Date)
- Routledge(Publisher)
...ECONOMIC TERMS Balance of Payments (paragraph 183). The term “Balance of Payments” is used in this Report for “International Balance of Payments” indicating the relation between two nations or countries which use different currencies. The citizens of each country use their own currencies in dealing with one another. In dealing with citizens of another country, they make and receive payments across a currency frontier. Incomings and outgoings, including both immediate payments and promises to pay later, must always balance, as the two sides of a balance sheet or an income and expenditure account always balance. The important question is how this balance is brought about. If the goods and services supplied by the people of one country to the rest of the world are less in value than the goods and services received by that nation from the rest of the world, then either (a) some of the goods and services received must have been supplied on credit or in cancellation of an old debt previously owed to that country from abroad, or (b) the country must have parted with some of its stock of gold or other international currency to pay for them. In the first case (a), there is a movement of capital, in its financial sense, which balances the deficit on goods and services. In the second case (b), the account is balanced by a movement of gold or other international currency. The second of these ways of balancing the international account of a country which buys more than it sells obviously depends on its having a stock of gold or international currency and depletes that stock. It cannot go on indefinitely, and ends by making the country illiquid...
eBook - ePubContemporary Economics
An Applications Approach
- Robert Carbaugh(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...balance of payments and the markets in which Americans exchange dollars for other currencies. We will also expand our understanding of foreign currency markets by analyzing the advantages and disadvantages of various exchange rate systems. The Balance of Payments Every year, Americans conduct many transactions with foreigners. Some examples include the following: Walmart imports shirts from Hong Kong. General Motors exports minivans to Brazil. Holiday Inn supplies rooms to German tourists visiting San Francisco. Ayako Ozawa, a student at Stanford University, receives gifts from her family in Japan. American investors receive dividends from their investments in Germany. Edgar Valdez, a resident of Mexico, purchases U.S. Treasury bills. George Thomas, who lives in Philadelphia, purchases stock in Sony Corp. of Japan. The U.S. government compiles a statistical record of these and other transactions. This record is called the balance of payments. The balance of payments is a record of a country’s international trading, borrowing, and lending. In the balance of payments, inflows of funds from foreigners to the United States are noted as receipts, with a plus sign. Outflows of funds from the United States to foreigners are noted as payments, with a minus sign. The balance of payments has two components, the current account and the capital and financial account, which we will now examine. The Current Account The first component of the balance of payments is the current account, which represents, as the name suggests, the dollar value of U.S. transactions in currently produced goods and services, investment income, and unilateral transfers. The most widely reported component of the current account is the Balance of Trade, also known as the trade balance. This balance includes all of the goods (merchandise) that the United States exports or imports: agricultural products, machinery, autos, petroleum, electronics, computer software, jetliners, textiles, and the like...
eBook - ePubMacroeconomic Theory: A Short Course
A Short Course
- Thomas R. Michl(Author)
- 2015(Publication Date)
- Routledge(Publisher)
...The scenario described here has played itself out on many occasions recently, such as in the UK, Italy, and Sweden in 1992 or in Thailand and other Asian nations in 1997. 12.2 The trade balance We have already defined the trade balance as the difference between exports and imports, or net exports. But exports and imports are, strictly speaking, incommensurable because the former are domestic goods while the latter are foreign goods, which must differ or else they would be perfect substitutes. To measure imports in the same units (volume of domestic goods) as exports, we need to multiply by the real exchange rate, which by assumption is here equal to the exchange rate, e. A dimensional analysis. clarifies: dim (e P * P) Q = dim e (dim P * dim P) dim Q = ($ €) (€ E u r o p e a n g o o d s) (U S g o o d s $) (E u r o p e a n g o o d s y e a r) = U S g o o d s y e a[--=PLGO-SEPARATO. R=--]r Armed with this insight, we define net exports by NX = X − eQ (recalling that we set P * = P by assumption). 12.2.1 The net export function A nation’s exports depend on two key factors, their price and the ability of foreign buyers to pay (i.e., the income of the rest of the world). Under our assumptions, the effective price of exports is determined by the exchange rate. We expect that a depreciation or devaluation should reduce the price of exports and raise their volume, and conversely for an appreciation or revaluation. An increase or decrease in foreign income should be directly reflected in export volumes. A nation’s imports similarly depend on the exchange rate and domestic income. A depreciation (or devaluation) makes foreign goods more expensive, which discourages imports. An appreciation (or revaluation) has the opposite effect. An increase in national income raises expenditure on goods of all kinds, including imported goods, just as a slump in income reduces such spending. This is an important fact, especially for understanding the short-run behavior of net exports...
- James E. Meade(Author)
- 2013(Publication Date)
- Routledge(Publisher)
...CHAPTER VII A Balance-of- Trade Deficit and the Rate of Exchange in Conditions of Free Trade WE shall now turn from a consideration of Commercial Policy and shall assume once more that there is a free trade policy in both countries, A and B. But we no longer assume that the Balance of Trade of each country is zero. Our purpose in this section will be (a) to show how a balance-of-trade deficit or surplus can be represented on our geometric diagrams and (b) to consider the relationship, in a free trade world, between the size of the balance-of-trade deficit or surplus and the rate of exchange and barter terms of trade. In considering the rate of exchange we shall make the same assumptions about internal monetary policies as we have previously made. In country A the monetary and fiscal authorities take steps to inflate the general level of domestic expenditure of money on goods and services whenever the price of A-exportables in terms of A’s currency falls, and to deflate domestic expenditure in A whenever the price of A-exportables rises in terms of A’s currency. Thus the demand price for A-exportables is fixed in terms of A’s currency. Behind this fixed point, a free competitive market for A-exportables and B-exportables in A results in a price for B-exportables in terms of A’s currency which will just clear the market in A for both commodities; and a free competitive market for labour causes the money wage-rate in A to rise (or to fall) when the demand for labour exceeds (or falls short of) the supply, so that full employment is maintained. A similar monetary policy is adopted in B...
eBook - ePub- Daniel R. Kane(Author)
- 2018(Publication Date)
- Routledge(Publisher)
...net volume of capital which have flowed into and out of a country over a specified period, usually twelve months. Although balance of payments measures are compiled and published on a quarterly and even monthly basis, short-term fluctuations mean that these are only a general guide to overall trends. Even annual payments measures, because of data deficiencies and inaccuracies, have to be revised, sometimes over several years and sometimes significantly in both size and scope. APPLICATION At a microeconomic level, balance of payments measures are used to: analyse the economic role of individual goods and services accounts; quantify variations in the magnitude and direction of capital flows; identify the sources and uses of foreign exchange. These microeconomic applications describe individual international activities whose economic impact might be counterbalanced by activities recorded elsewhere in the balance of payments. At a macroeconomic level, balance of payments measures relate to aggregate international activities and indicate whether an economy is in external equilibrium or whether the foreign sector is subjecting the domestic economy to expansionary or contractionary pressures (external disequilibrium). This enables balance of payments measures to be used as a basis for either restoring external equilibrium or using external disequilibrium as a macroeconomic policy variable to achieve, for example, domestic economic expansion. The application and interpretation of balance of payments measures is subject to two qualifications: Firstly, balance of payments measures include both final and intermediate goods and services. They are not therefore a direct indicator of economic welfare. Secondly, imbalances in balance of payments measures reflect surpluses and deficits and not profits and losses...
eBook - ePubEconomics
An Awkward Corner
- Joan Robinson(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...II THE Balance of Trade T HE problems of international trade lie deeper than relative rates of inflation. There is no particular reason to expect trade for each country to balance in a market economy. Nations, in various shapes and sizes, are formed by history and geography without any regard to economic convenience. As population grows and tastes and technology change, the pattern of demand and supply of various goods and services in the trading world is constantly shifting; at any moment the inhabitants of one patch of the earth’s surface find that their resources, natural or accumulated, their skills and inventiveness, their market connections and business acumen, make it easy to sell more to the rest than they need to buy from them, while another is finding it very hard. THE BRITISH DEFICIT The British economy today is at an awkward corner in economic history. Already before 1914 her dominating position in world trade was beginning to slip. Two wars and the slump in between raised up rival local production in many markets. Lancashire now has to be defended against cheap textiles from countries whose indigenous industries she was once encouraged to ruin in the name of free trade. The other great staple export, coal, has been knocked out by technical developments. Rentier income—interest and profits on overseas investments built up in the era of trade surpluses and imperialist land grabbing—was an important substitute for exports. This was much reduced by the mobilization of foreign securities to pay for wartime supplies, and heavy debts were incurred (for wars also are conducted largely on market principles). Former privileges were lost with the dissolution of empire. The superior efficiency of United States industry, not fully offset by higher wage rates, and the fast rise of Western Europe and Japan, has stiffened competition in export markets that England could once dominate without excessive exertion...
