Table 1 shows annual trade data for a country that imports fuel and exports medicines. Its government is reviewing whether a lower exchange rate could reduc...
Question 1 Report
Table 1 shows annual trade data for a country that imports fuel and exports medicines. Its government is reviewing whether a lower exchange rate could reduce the deficit.
| Year | Exports of goods ($bn) | Imports of goods ($bn) |
|---|---|---|
| 2021 | 18.4 | 20.1 |
| 2022 | 19.6 | 23.0 |
(a) Calculate the trade balance in goods in 2022. [2]
(b) State how the trade balance changed between 2021 and 2022. [1]
(c) Explain one reason why a lower exchange rate may not reduce this country's import spending. [1]
Answer Details
(a)
\[\$19.6\text{ bn}-\$23.0\text{ bn}=-\$3.4\text{ bn}\]
The 2022 trade balance in goods is \(-$3.4\) billion, or a $3.4 billion trade deficit [2].
(b) The deficit increased, or worsened, from $1.7 billion in 2021 to $3.4 billion in 2022 [1].
(c) Fuel may be price inelastic because it is essential [1]. A lower exchange rate raises its domestic-currency price, but the quantity imported may not fall enough to reduce total import spending.
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