Fig. 1 shows trade flows for the island economy of Neru during one year. Its government is deciding whether to increase spending on export promotion. Neruex...
Question 1 Report
Fig. 1 shows trade flows for the island economy of Neru during one year. Its government is deciding whether to increase spending on export promotion.
(a) Show that Neru has a trade deficit. [2]
(b) Explain one way in which a successful export-promotion policy could reduce this deficit. [2]
Answer Details
(a) Neru’s imports are $61 million and its exports are $48 million [1].
\[\$61\text{ m}-\$48\text{ m}=\$13\text{ m}\]
Imports exceed exports, so Neru has a $13 million trade deficit [1].
(b) Export promotion can increase awareness of, and demand for, Neru’s exports [1]. If export earnings rise, the gap between export and import values narrows, reducing the trade deficit [1].
Download The App On Google Playstore
Everything you need to excel in your exams
