Balance Of Trade Flashcards, test questions and answers

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What is Balance Of Trade?

Balance of trade is a term used to describe the difference between a country’s imports and exports. A positive balance means that the value of a country’s exports exceeds its imports, while a negative balance indicates that the value of imports surpasses its exports. This concept is important in international economics, as it provides insight into how well countries are able to compete with each other in terms of their ability to produce goods for export. Imports represent products or services which are bought from another country; these are usually more expensive than domestic equivalents due to shipping costs and tariffs levied on imported goods by governments. Exports refer to products or services sold abroad; they tend to be cheaper than those available domestically because foreign buyers often pay less for them due to lower labour costs or different exchange rates. The balance of trade reflects the relative competitiveness of two countries in terms of their ability to generate income through exporting goods or services at competitive prices compared with importing them from elsewhere. The benefits associated with maintaining a positive balance include increased employment opportunities, higher foreign exchange reserves, improved economic growth prospects and currency stability. On the other hand, running deficits can lead to an outflow of capital, leading to an increase in external debt and decreased investment inflows into domestic markets as investors become wary about putting money into an economy where there is significant uncertainty regarding future returns on investments made today. Achieving balanced trade requires careful management by policy makers regarding import levels versus export levels, along with reducing barriers such as tariffs and non-tariff measures so that companies have access to markets abroad without facing too much competition from foreign rivals who may offer better prices for similar products or services due largely thanks government support schemes like subsidies back home.