Macroecon - Grace Kim Foreign Exchange and Trade I Balance...

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Grace Kim Foreign Exchange and Trade I. Balance of trade A. Trade surplus - exporting more than imports B. Trade deficit/gap - exporting less than imports C. Balance of payments (2 accounts) 1. Current account - transactions that don’t create liabilities (3 parts) a) 2. capital/financial account - transactions of purchase of assets that create future liabilities a) 3. Balance of payments - shows summary of all country’s transaction w/ other countries a) Credit - money coming in b) Debit - money going out
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c) d) e) If more exports, loanable funds shifts to the right f) If more imports, loanable funds shifts to the left g) Current account + capital account = 0 (1) Current account and capital account inverse relationship (deficit/surplus) II. Trade A. Plus’s when people/countries engage in trade 1. Cheaper goods 2. Greater variety of goods/services 3. Increased productivity B. Minus’s in trade 1. World’s price is cheaper than domestic —> country imports, domestic price falls —> domestic producers/workers harmed C. Barriers (protectionism) 1. Tariffs: tax on imports 2. Quotas: limits on quantity of imports
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