The Balance of Trade

The balance of trade is influenced by keynes theory. It is the relationship between a nation's imports and exports.

A balance of trade is known as a trade surplus if it consists of exporting more than is imported; otherwise it is called a trade deficit or, informally, a trade gap. The balance of trade is sometimes divided into a goods and a services balance.

Trade Restrictions

The main types of trade restrictions are tariffs, quotas, embargoes, licensing requirements, standards, and subsidies.
Tariffs, taxes on imports, raise the price of imported goods, which increases the demand and price for the same goods produced by domestic suppliers. Revenues from tariffs are collected by the domestic government.
Quotas put a legal limit on the amount that can be imported, creating shortages which cause prices to rise. A quota benefits domestic producers in the same way a tariff does, but the additional money expended on foreign goods goes to the foreign producers, not the domestic government.
Embargoes prohibit trade with other nations. They bar a foreign nation's imports or ban exports to that nation or both.
Licenses may be required of importers of foreign goods so that imports can be restricted by limiting the number of licenses issued. Export licenses may be required in order to implement partial embargoes on trade with specific nations.
Standards are laws or regulations establishing health and safety standards for imported goods, frequently much stricter than those applied to domestically produced goods.
Subsidies are payments made by governments to their domestic producers to enable them to compete with foreign competitors. They are usually intended to be temporary, allowing domestic producers to acquire new technology or to survive a short-term problem, but they frequently linger on for many years. It is difficult to dislodge entrenched special interests. Taxpayers bear the costs of subsidy payments.
Trade restrictions limit world trade, diminish economic efficiency, reduce total production and employment, raise prices, and encourage retaliation. They benefit some domestic companies and their workers at the expense of foreign companies and workers, and domestic consumers. While subsidies benefit some domestic companies and workers in exporting industries, tariffs reduce exports. Tariffs shift resources and production from more effective to less effective producers. Arguments used to support trade restrictions include the infant industry argument and the national security or strategic industry argument.

The Balance of Payments

A balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. The BOP summarizes international transactions for a specific period, usually a year, and is prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as a negative or deficit item.
We always try to balance the payments on everything

Exchange Rates

The exchange rate expresses the national currency's quotation in respect to foreign ones. For example, if one US dollar is worth 10 000 Japanese Yen, then the exchange rate of dollar is 10 000 Yen. If something costs 30 000 Yen, it automatically costs 3 US dollars as a matter of accountancy. The exchange rate is a conversion factor.

Different types of currencies are shown here.

SS.D.2.4 The student is able to identify the need for foreign exchange rates.