Historically, foreign trade is the initial form. With its help, all national economies are linked into a single world economy. determines the division of labor between countries, which with the development of economic relations is increasingly improved and deepened.
An important place is occupied by indicators of foreign trade, which includes the trade balance, receipts and payments for services, income from foreign investments, non-commercial payments, foreign exchange reserves, movement of short-term and long-term capital.
The trade balance is determined by the ratio of exports and imports of goods. Due to the fact that the bulk is carried out on credit, there are some differences between the figures of trade carried out during the relevant period and the actual receipts and payments.
The economic significance of a particular country's trade deficit or surplus depends on its position in its economic policies and on the nature of its ties with partner countries. For states that lag behind the leaders in terms of economic development, the active trade balance becomes a source of foreign exchange earnings to pay obligations to other countries and for other items in the balance of payments.
Some advanced industrial countries use surpluses to create a second economy abroad. A passive trade balance is considered an undesirable phenomenon; this characteristic is a sign of a weak foreign economic position of the state. Passive balance is characteristic of developing or backward countries that lack foreign exchange earnings. This is important for industrial
Of course, a bad sign is a decrease in exports as a result of a decrease in demand for goods and services of one country in other countries. However, if a negative trade balance occurs, for example, with an increase in imports of investment products, which results in an increase in domestic production, then in this case the negative balance is not a reason for a negative assessment of the country’s economic condition.
Thus, a trade balance deficit or surplus is assessed only on the basis of an analysis of the circumstances leading to such a result. For example, the existing positive balance in the trade balance of the Russian Federation is not a basis for an optimistic assessment of this situation. Due to the fact that Russia’s main export item is natural resources, raw materials and not goods are mainly exported from the country, we can talk about the low level of state production and the poor state of the economy.
If the negative balance increases, then the trade balance is deteriorating. This indicates that the country spends more money abroad than it receives; as a result, the supply of national currency from trading participants increases in the foreign exchange market, and the demand for foreign money increases. In this case, conditions are created for the emergence of tendencies to depreciate the exchange rate of one’s own currency. And, in the opposite case, with a positive trade balance, there are tendencies towards an increase in the exchange rate of the national currency.
It is obvious that as a result of devaluation, the depreciation of one’s own currency, the activities of exporters are stimulated, and imports become less profitable. Thanks to this change in the exchange rate, the prerequisites are created for an increase in export operations and a reduction in imports. As a result, the negative trade balance decreases and a positive trade balance emerges.
Scheme 1. Structure of the World Trade Organization.
Scheme 2. Goals of GATT/WTO.
Tests.
1. GATT is:
a) global association for trade in goods;
b) general association for trade and tariffs;
c) general agreement on tariffs and trade;
d) the main association for trade in goods and services.
2. Russia:
a) is a full member of the WTO;
b) is not a member of the WTO;
c) uses WTO benefits exclusively for arms exports;
d) uses WTO benefits only for the supply of raw materials.
3. WTO is:
a) an international organization whose main goal is the development and liberalization of world trade;
b) an international organization whose goal is also the development of protectionism in world trade;
c) industrial development organization;
4. Who are members of the WTO:
b) Africa;
e) Russia;
f) Ukraine;
g) Vietnam.
5. The benefits of participation in the WTO for the country’s economy are as follows:
a) increase in income;
b) decrease in employment;
c) decrease in the efficiency of foreign economic activity.
Answers to tests.
1. V). 2. b). 3. A). 4. a), b), c) and d). 5. A).
Exercise.
1. Russia’s place in the global foreign exchange market.
2. The country’s balance of payments is characterized by the fact that:
a) the balance of payments total, strictly speaking, is always zero (yes, no);
b) when we provide loans to residents of other countries, this transaction appears as a loan in our balance of payments (yes; no);
c) a decrease in official foreign exchange reserves will
reflected in the balance of payments with a minus sign: this operation
is a debit or import type transaction (yes, no);
d) the current account deficit is financed mainly by net capital inflows (yes, no).
3. Let’s assume that Russia produces 360 electric locomotives and 2,400 cars, and Ukraine produces 160 electric locomotives and 800 cars. If Russia produced only electric locomotives, then their daily output would be 600 units, and if only carriages, then their daily output would be 600 units. Accordingly, Ukraine could produce either 200 electric locomotives or 4,000 cars.
Define:
3.1. Which country has an absolute advantage in the production of these types of products?
3.2. What are the comparative advantages of Russia and Ukraine in the production of both products?
3.3. Benefits that come from specialization.
Control questions.
1. What is the WTO?
2. What are the distinctive features of GATT and WTO?
3. What are the main principles of GATT and WTO?
4. What is the system of international trade agreements?
5. Who are the members and observers of the WTO?
6. What divisions are included in the organizational structure of the WTO?
7. What are the advantages and disadvantages of the WTO trading system?
8. What are the consequences for Russia if it joins the WTO?
Tasks
Problem 1
Let us assume that the economy of country A is characterized by the following indicators:
♦ export of goods is 19,650 den. units;
♦ import of goods is 21,758 den. units;
♦ citizens of country A receive income from foreign investments in the form of foreign interest payments in the amount of 3,621 den. units;
♦ Country A pays foreign investors an interest income of 1,394 den. units;
♦ citizens of country A spend 1,919 den. on tourism. units;
♦ country A receives income from tourism of 1,750 den. units;
♦ unilateral transfers from country A are equal to 2.388 den. units;
♦ the amount of capital abroad of country A is 4,174 den. units;
♦ capital inflow to country A is 6,612 den. units
Using the available data, calculate:
1. Current account balance and capital flow balance.
2. Balance of payments of country A.
Solution
1. The current account balance is calculated as the sum of income from the export of goods, export of tourism services and income in the form of interest payments from foreign investments (factor income from abroad) minus the amount from imports of goods, services, interest payments to foreign investors and unilateral transfers from country A:
(19,650+1,750+3,621)-(21,758+1,919- 1,394 + 2,388) = 25,021
den. units - 27,459 den. units = - 2.438 den. units
The current account balance is negative.
The capital account balance (capital flow) is the difference between the inflow of capital into country A and the outflow of capital from it:
6,612 den. units -4,174 den. units = + 2.438 den. units
The capital account balance is a positive value.
2. The balance of payments is calculated by comparing the balance of the current account and the balance of the capital account:
2,438 den. units + 2,438 den. units = 0.
In other words, the capital account balances the current account of country A's balance of payments.
Problem 2
Let’s assume that the price of the consumer basket in Russia is 5,000 rubles, and the same figure in the USA is 100 dollars.
2. What will happen to the dollar exchange rate if prices for goods in Russia double, but in the US economy everything remains unchanged?
Solution
5000 rub. : 100 dollars = 50 rubles,
i.e. the price of 1 US dollar is equal to 50 rubles.
5000 rub. x 2 = 10,000 rub.;
10,000 rub. : 100 dollars = 100 rubles, i.e. the price of 1 US dollar has doubled compared to the original conditions.
3. Changes in exchange rates are explained on the basis of the theory of purchasing power parity (PPP), according to which, in order to determine the relationship between exchange rates, it is necessary to compare the prices of similar consumer baskets of the countries being compared.
Problem 3
Let's assume that the price of the consumer basket in Russia is 5,000 rubles, the same figure in the USA is 100 dollars.
1. What is the relationship between the exchange rates of these countries?
2. What will happen to the dollar exchange rate if prices for goods in Russia double, but everything in the US economy remains unchanged?
3. What theory explains such fluctuations in exchange rates?
Solution
1. Let’s compare the exchange rates of the two countries:
5000 rub. : 100 dollars = 50 rubles... i.e. the price of 1 US dollar is equal to 50 rubles.
2. With these changes, the following will happen:
5000 rub. x 2 - 10,000 rub.; 10,000 rub. : 100 dollars = 100 rubles,
i.e. the price of 1 US dollar has doubled compared to the original conditions.
3. Changes in exchange rates are explained based on the theory of purchasing power parity (PPP). according to which, in order to determine the relationship between exchange rates, it is necessary to compare the prices of similar consumer baskets of the countries being compared.
According to this theory, changes in the exchange rate are caused by the need to compensate for differences in price level dynamics in different countries.
Problem 4
The conditional economic conditions of countries A and B are reflected in the data in the table.
1. What are the nominal amounts of each country's debt service payments?
2. What is the nominal estimate of the government budget deficit of each country?
3. What kind of economic relations are possible between these countries?
Solution
1. Based on the data presented, we calculate the nominal amount of payments by countries to service public debt: 2,000 den. units x 0.03 = 60 den. units 2,000 den. units x 0.13 = 260 den. units
2. Each country's nominal (or official) estimate of the government deficit is the difference between nominal government spending (including nominal debt service payments) and nominal government tax revenues.
In country A:
200 den. units + 60 den. units - 260 den. units = 0 den. units
In country B:
200 den. units + 260 den. units - 260 den. units = 200 den. units
3. Calculated nominal indicators of the state of countries give the opportunity to assume that in a given economic period, country A is in a relatively more advantageous position and can choose forms of interaction with country B. At the same time, the absence of real indicators, for example, price levels, inflation rates, draws conclusions conditional.
Problem 5
Under free trade, each dollar of unit cost in the textile industry has the following structure:
40% (40 cents) - added value;
30% (30 cents) - costs of cotton yarn;
30% (30 cents) - costs for other fiber.
Let's say the government introduces tariffs:
For textile imports - 25%;
For import of cotton yarn - 16.7% (1/6).
The notional unit price without tariffs is $1. Calculate the distribution of unit costs after imposing two import tariffs.
Solution
The introduced tariff on textile imports - 25% - will increase the price of each unit of textile industry products by 25 cents:
$1 + $0.25 = $1.25.
The cotton yarn import tariff will increase domestic prices by 16.7% and increase cotton costs compared to the original value:
$0.3 x $0.167 = $0.05;
$0.3 + $0.05 = $0.35.
This is a new cost for cotton yarn.
This means that production costs per unit increased by $0.05. The value added increased by:
$0.25 + $0.05 = $0.03.
The amount of new added value per each unit of production after the introduction of tariffs was:
$0.4 + $0.3 = $0.7.
Other fiber costs were:
$1.25 - $0.7 – $0.35 = $0.3.
Problem 6
The following balance of payments data is available for country A (in monetary units).
1. Trade balance.
2. Balance of current transactions.
Balance of official accounts of country A.
Solution
20 den. units = + 40 den. units
4. The official balance is the part of the balance of payments that does not include changes in official foreign currency reserves. This balance covers all items except the item “Reserve assets”. Thus, this indicator is equal to 20 den. units
Problem 7
1. Trade balance.
2. Balance of current transactions.
3. Balance of capital movements.
Solution
The answers are based on the principles of constructing the balance of payments and the classification of its items.
1. The trade balance is determined by comparing exports and imports of goods:
80 den. units - 60 den. units = + 20 den. units
2. The current account balance is calculated by summing exports and imports of goods and services, net investment income and net transfers:
80 den. units - 60 den. units + 30 days units - 20 den. units - 10 days units +
20 den. units = + 40 den. units
3. The capital flow balance is determined by comparing the inflow and outflow of capital of country A:
20 den. units - 80 den. units = - 60 den. units
Problem 8
The following balance of payments data are available for country A (units):
1. Trade balance.
2. Balance of current transactions.
3. Balance of capital movements.
4. Balance of official accounts of country A.
Solution
The answers are based on the principles of constructing a payment score for the classification of its articles.
1. The trade balance is determined by comparing the port's exports of goods:
80 den. units - 60 den. units = + 20 den. units
2. The current account balance is calculated by summing exports and imports of goods and services, net investment income and net transfers:
80 den. units - 60 den. units + 30 days units - 20 den. units - 10 days units+
20 den. units = + 40 den. units
3. The capital flow balance is determined by comparing the capital inflow of country A:
20 den. units - 80 den. units = - 60 den. units
4. The balance of official accounts is the part of the balance of payments that does not include changes in official foreign currency reserves. This balance covers all items except the item “Reserve assets”. Thus, this indicator is equal to 20 den. units
Problem 9
The following balance of payments data are available for country A (in monetary units):
1. Trade balance.
2. Balance of current transactions.
3. Balance of capital movements.
4. Balance of official accounts of country A.
Solution
The answers are based on the principles of constructing the balance of payments and the classification of its items.
1. The trade balance is determined by comparing exports and imports of goods:
80 den. units - 60 den. units = + 20 den. units
2. The current account balance is calculated by summing exports and imports of goods and services, net investment income and net transfers:
80 den. units - 60 den. units + 30 days units - 20 den. units - 10 days units +
20 den. units = + 40 den. units
3. The capital flow balance is determined by comparing the inflow and outflow of capital from country A:
20 den. units - 80 den. units = - 60 den. units
4. The balance of official accounts is the part of the payments balance that does not include changes in official foreign currency reserves. This balance covers all items except the item “Reserve assets”. Thus, this indicator is equal to 20 den. ed.
Problem 10
In country A the ratio for the production of machine tools and textiles is 1C:4T, in country B the ratio for these goods is 1C:1T. The world price is 1C:2T. Draw transformation curves and trade opportunity lines for each country. Does it make sense to establish trade relations between these countries if they have transformation curves with the same slope?
Solution
T T
Rice. 1. Country B Fig. 2. Country A
In Fig. Line 1 of trade opportunities for the CU of country B has a slope that reflects the world price, i.e. 1C:2T. Rice. 2 shows the trade possibilities line of country A T1C1, which has the same slope. Country B will specialize in the production of machine tools and import textiles. Country A will specialize in textile production and import machine tools.
If countries have the same slope of transformation curves, then this means that none of these countries has a comparative advantage in the production of either of the two goods, i.e. the opportunity cost of each of the two goods is exactly the same. Therefore, establishing trade relations between these countries does not make economic sense.
Problem 11
Country A can produce 10 per unit of resources T wheat or 10 T coffee, country B - 30 T wheat or 60 T coffee. Domestic consumption in country A is at point (5, 50), in country B - at point (15, 180). Which country will export wheat?
Solution
Country A has an absolute advantage in the production of wheat and coffee and has a comparative advantage in the production of wheat. The opportunity cost of wheat production is 1 T coffee vs 2 t coffee from country B. Country B has a comparative advantage in coffee production (the opportunity cost of its production is 0.5 T wheat vs 1 T wheat from country A). In this case, country A will export wheat, and country B will export coffee. Exchange trade ratios are found from the cost ratio:
1 T wheat = 1 T country A has coffee;
1 T wheat = 2 t coffee from country B.
It can be assumed that 1 T wheat = 1.5 and coffee.
Specializing in the production of wheat, country A will produce 30 T for 1 unit of resources, and country B., specializing in growing coffee, will produce it in the amount of 20 T per 1 unit of resources. Out of 30 T wheat 20 T will be sold on the domestic market, and 10 T exported. To import 10 T wheat, country B will have to export 15 T coffee from 20 T, which it produces per unit of resources. 5 will be sold on the domestic market of country B T coffee. The effect of specialization is to increase the output of wheat and coffee in the world economy and increase domestic consumption. In country A, wheat consumption will increase from 18 to 20 tons, and coffee from 12 to 15 tons. In country B, wheat consumption will increase from 8 to 10 m, and coffee from 4 to 5 T.
Solution
Let's determine the cost of a basket of goods in currency X and in currency Y and compare the results:
10 x 100 + 2 x 1000+ 100x5/10x4 + 2x200+ 100 x 1.
The numerator is the cost of a basket of goods in currency X, the denominator is the cost of a basket of goods in currency Y. The costs of the baskets are related as 3500: 540 = 6.48, i.e. currency X is 6.5 times cheaper than currency Y.
Problem 13
The price of the consumer basket in Russia increased by 20% in rubles. During the same time, the ruble fell in value from 3,500 rubles/dollar to 4,000 rubles/dollar. The cost of an identical consumer basket in the US rose by 2%. Has the standard of living in Russia increased or decreased relative to the standard of living in the United States?
Solution
The cost of this consumer basket in Russia, expressed in dollars, increased by 5% (1.2 / (4000 / 3500) = 1.05). Therefore, the standard of living, other things being equal, decreased relative to the American one by 2.85% (1 - 1.02 / 1.05) = 0.0285.
Problem 14
Determine the parity of the dollar to the ruble if the consumer basket includes three products A, B and C in quantities of 5, 25 and 40 at the following prices:
Solution
For the consumer basket in dollars you need:
3x5 + 1 x 25 + 0.5 X 40 = 60. For the consumer basket in rubles you need: 9000 x 5 + 3200 x 25 + 2000 x 40 = 205000.
The parity of the dollar to the ruble is 205,000 / 60 = 3,416.66 rubles.
Problem 15
Russia's capabilities allow it to produce 64 million. T potatoes or 16 million tons of wheat, and Ukraine can grow 18 million. T wheat or 36 million T potatoes with full use of the area under one crop. The sown areas in Russia and Ukraine are conventionally considered homogeneous. If the hryvnia to ruble exchange rate is 30:1, and Russia offers potatoes for 5 rubles. per kilogram, then what range of domestic prices for Ukrainian wheat makes the exchange profitable for Ukraine and Russia?
Solution
Mutually beneficial prices expressed in terms of opportunity costs are equal to 2K< 1П < 4К. 1 кг. картофеля в переводе на гривны стоит 150 гр. Следовательно, в интервале цен на пшеницу от 150 гр. до 300 гр. торговля будет взаимовыгодной.
Problem 16
Find the benefit, measured in each country's working hours, from the exchange 1 T wheat by 1.4 m rice between China and Russia, taking into account the following production costs for rice and wheat:
| Countries | Costs in hours per 1 T | |
| Rice | Wheat | |
| Russia | ||
| China |
What can you say about comparative and absolute advantages?
Solution
China has an absolute advantage in both rice and wheat, but a comparative advantage only in wheat production. To produce 1 kg of wheat, China sacrifices the production of 0.67 kg. rice in comparative prices, i.e. 1P = 0.67 R (from the table: 1 P = 10/15 = 0.666 = 0.67). In Russia, the ratio is 1P = 1.25 R (from the table: 1P = 30/24 = 1.25). Therefore, Russia has a comparative advantage in rice production.
When exchanging 1 T wheat from China at 1.4 T rice produced in Russia, China benefits from the fact that on I m wheat he spends 10 hours, and for 1.4 T Rice production on our own 15 x 1.4 = 21 hours. Therefore, China's gain in hours will be: 21-10 = 11 hours. Russia ends up losing: 30 x 1 - 24 x 1.4 = 3.6 hours.
Problem 17
In international practice, one of the forms of relationships between countries is assistance in the form of interest-free loans. The amount of assistance is determined by the share that must be paid at the effective interest rate. This share in financial calculations is called the grand element. What is the gratuitous assistance (grand element) in % for an interest-free three-year loan compared to the usual terms of long-term lending: 7.5% per annum, paid annually?
Solution
Over three years, interest will be 7.5% X 3 = 22.5%. It is necessary to return 107.5% per year. and with an interest-free loan - 100%. Therefore:
(1 - 100/107.5) x 100% = 0.0697, i.e. 0.7. or approximately 7%.
Tests.
Test 1
Choose the answer that most fully characterizes the phenomenon of “capital flight”:
a) capital migration;
b) illegal export and import of short-term capital;
c) movement of capital to another national economy due to its illegal origin;
d) removal of capital from the country for the purpose of its safety and security;
e) export of capital due to its surplus in the country.
Test 2
Select the type of international capital movement that can be characterized as foreign direct investment:
a) the investment fund of country A purchases treasury bills of the Ministry of Finance of country B in the amount of 50 million den. units;
b) the national bank of a conditional country buys shares of an automobile company in the amount of 10 million den. units The total cost of issuing shares of this company is 250 million den. units;
c) two companies from different countries create a joint service (for example, consulting) company on the territory of one of them; the companies' shares in the authorized capital are equal;
d) the International Bank for Reconstruction and Development provides a developing country with a loan to carry out structural changes in the extractive industry in the amount of 50 million den. units
Test Z
The main instruments of protectionist policy (duties, quotas, export subsidies, trade embargoes) are used by the state to achieve goals such as (choose an answer):
a) protection of fundamentally new (“young”) industries from the effects of competition from foreign entrepreneurs;
b) growth in employment within the country;
c) prevention of dumping;
d) ensuring national economic security:
e) all of the above answers characterize the directions of protectionism from different points of view.
Test 4
“Capital flight,” while remaining an important manifestation of a threat to national economic security, is not a feature unique to modern Russia. Any private capital responds by “flight” to real negative changes in politics or economics.
Taking into account the above, select from the proposed incentives those that more accurately than others determine the specifics of the Russian process of “capital flight”:
a) political instability;
b) the possibility of confiscation;
c) high level of inflation;
d) insecurity of property;
e) insufficient legislative framework for entrepreneurship;
f) high taxes, financial restrictions;
g) failure of the government to fulfill its financial obligations
h) dollarization of the economy.
Test 5
a) it is actively used in small open economies that are heavily dependent on foreign trade;
b) with a fixed exchange rate it is impossible to pursue an independent monetary policy;
c) a fixed exchange rate is a “built-in” (automatic) stabilizer that brings the balance of payments into a state of equilibrium;
d) it is optimal when the national economy is faced with the problem of unexpected, unpredictable changes in the demand for money.
Test 6
There are several factors that determine the place and role of a country in the global economic community. Choose one that modern Russia is most satisfied with. Explain your answer choice:
a) the level and dynamics of development of the national economy;
b) the degree of openness and involvement in the international division of labor;
c) development of foreign economic relations;
d) the ability to adapt and influence the international; economic life.
Test 7
Select from the listed possible prerequisites for the convertibility of the ruble the one that is described by the IS - LM model:
a) liberalization of foreign economic relations;
b) achieving macroeconomic stabilization in the real and financial sectors of the economy:
c) strengthening export potential;
d) the ruble does not exceed the inflation rate in countries whose currencies are used in the world economy.
Test 8
Select the reasons why industries that compete with imported goods and services oppose free foreign trade:
a) these industries will be forced to increase production efficiency in order not to lose in competition;
b) these industries may lose those buyers who prefer imported products, therefore, a reduction in sales and profits is possible;
c) industries will be forced to sell products at lower prices due to increased competition;
d) for all of the above reasons.
Test 9
In the global market, leadership is gained and maintained by companies that:
a) catch a new need that has arisen in the market:
b) capture the economic and technological potential contained in the new technology;
c) engage in industrial espionage;
d) actively respond to changes in the external and internal business environment.
Test 10
To actively influence migration processes, national governments regulate:
a) the number of immigrants; b) gender and age structure; c) professional structure; d) composition of immigrant families; k) educational level of immigrants; f) duration of stay in the country; g) marital status of immigrants; h) the financial situation of immigrants.
Test 11
Note the common features inherent in PRS and NIS:
a) high growth rates of GDP and industrial production;
b) concentration of production and capital;
c) formation of a highly efficient banking system;
d) the merger of banking and industrial capital and the formation of financial capital on this basis;
e) the activities of national corporations are international in nature;
f) the export of goods is accompanied by the export of entrepreneurial and loan capital;
g) participation in the competition for the economic redistribution of the world;
h) dominant role in international political relations;
i) concentration of scientific thought, development of fundamental scientific research.
Test 12
The South American market, uniting more than 200 million people, in the economic space of which about 60% of Latin America's GDP is produced, Argentina and Brazil participate in its organization. Uruguay, Paraguay since 1991 are:
a) NAFTA; b) MERCOSUR; c) Asia-Pacific; d) APEC; e) EU.
Test 13
The George Marshall Plan was associated with:
a) exercising international control over key sectors of the military industry of the EU countries;
b) transfer of the management of coal mining in France and Germany to a supranational body;
c) the creation of the European Atomic Energy Community;
d) US economic assistance to Western European countries.
The beginning of its implementation: e) 1951; f) 1957; g) in the period from 1945 to 1950; h) 1967
Test 14
For an intensive influx of foreign investment into the country, it is enough: a) to provide the foreign investor with a national investment regime: b) to provide the foreign investor with a standard (minimum) set of international investment rules; c) provide the foreign investor with additional benefits and privileges; e) protect them from “non-commercial” (political) risks; f) ensure political stability in the host country.
Test 15
Select countries included in NAFTA:
a) Venezuela; b) Cuba; c) Mexico; d) USA; e) Argentina; f) Bolivia; g) Canada; h) Uruguay.
Test 16
In industrialized countries there is a tendency:
a) accelerating population growth in megacities; b) population growth in megacities; c) reduction in the population of mega cities; d) population migration from big cities; e) slowdown in population growth in megacities; f) the flow of rural population into cities.
Test 17
The specific specialization of a country in the production of certain goods and services depends on:
a) use of advanced methods of production organization;
b) socio-economic characteristics of the country;
c) use of international legal requirements and rules;
d) natural and geographical conditions;
e) factors of an international nature;
f) scientific and technical interaction between countries;
g) industrial cooperation;
h) financial and information cooperation between countries.
Test 18
Note the basic principles of a global approach to the study and analysis of problems of the development of political, economic, social, cultural aspects of human life:
a) a holistic view of the system of interrelations between man, society, and nature;
b) understanding the system of relationships as a crisis;
c) development of problems of crisis development management;
d) the formation of a global management scheme for understanding what is happening on the planet;
e) determining the goals of economic and political influence, as well as the means and mechanism for achieving them.
Test 19
As a result of increasing customs duties on the import of alcoholic beverages, the welfare of the nation:
a) will not change;
b) will grow;
c) will fall;
d) may change indefinitely.
Test 20
Once again, new customs duties were introduced on the import of imported cars. This is an example policy:
a) liberalism; b) protectionism; c) monetarism; d) expansionism.
Test 21
In order to reduce the trade deficit, the State Duma proposes to increase customs tariffs on imports. If such a decision is made, you can expect:
a) increasing national imports and exports; b) reduction of national imports and exports; c) increasing the national import and reducing exports; d) reducing national imports and increasing exports.
Test 22
Which of the following most adequately describes the law of comparative advantage? Any trading country can gain greater benefit by selling goods:
a) the opportunity cost of producing which is high, and buying goods whose opportunity cost is low;
b) with a low opportunity cost of production and buying goods with a high opportunity cost;
c) from which the nation receives less pleasure, and by purchasing those from which the nation receives more pleasure;
d) surplus on the market of a given country and buying scarce goods.
Test 23
A country has a trade deficit if:
a) it sells goods abroad for a greater amount than it acquires from there:
b) she buys goods abroad for a greater amount than she sells there;
c) it invests more capital abroad than it receives from there;
D) government spending exceeds tax revenues.
Test 24
If Britain has a comparative advantage in car production over France, then:
a) specialization and trade in cars between Great Britain and France is unprofitable;
b) the opportunity cost of producing cars in the UK is higher than in France;
Trade deficit shows the excess of imports relative to exports, that is, this means that the country consumes more foreign goods than it exports its own.
What does it mean to have a trade deficit?
More often negative trade balance is perceived negatively, however, in countries with an import orientation, for example in the USA or England, this state of affairs rather indicates that the labor-intensive and harmful production of these countries has been transferred beyond its borders. This approach allows us to maintain a high standard of living and normal inflation in the country.
To understand, it is worth paying attention to the composition as a whole. If a state has a raw material specialization, then it is quite possible that the trade balance will be deficit, since it independently provides itself with everything necessary, while exporting a minimum amount of goods. Such a state imports mainly industrial products, which are higher in cost than food and other goods.
How does the publication of data on the trade deficit affect the exchange rate?
Trade deficit is an important indicator of the state of the country's economy, which is why investors constantly monitor reports on its condition.
A positive balance (or a decrease in the negative balance) is a favorable factor for the growth of the national currency. A small trade deficit is common for countries with stable economies, and can arise from time to time without causing harm to economic development. However, long periods of imbalance between exports and imports can create significant economic strain. At the same time, a prolonged trade deficit could also weaken the country's national currency in the Forex market.
Trade balance is an economic indicator that indicates cost of imported products (import) And exported products (export). The trade balance, depending on the predominant share of imports or exports, may be positive (surplus) or negative (shortage). There is such a thing as trade balance is exports minus imports, which is the largest part of the country's payments.
The impact of the trade balance on the economy
The trade balance and trade balance are very significant indicators of any economy, which significantly affect the exchange rate of the national currency. Direct dependence of national there is no currency dependence on the trade balance, just as there is no dependence of the growth of the country’s economy on the growth of the trade balance.
An increase in demand for goods of a particular country automatically increases the demand for the national currency. Since purchases and payments for manufactured goods are often made in national currency. Thus, the trade balance can act as an indicator of demand for a particular currency.
On the other hand, the trade balance is not the entire economy of the country, but only trade. And often countries with a global economy have a negative trade balance, and this does not mean that the economy of this country is slowing down, but indicates that it spends more than it sells, having other budget items.
Developed countries with budget deficits include: USA, UK, Japan and Canada. Over time, this indicator may change significantly. The value of the trade balance is represented by sudden changes, indicating a decrease or increase in a particular currency. At the same time, the trade balance depends on many factors: duties, economic growth rates, employment, inflation and many others.
Examples of the impact of the trade balance on national currencies
The main striking example of the growth of a national currency with an increase in the trade deficit is the United States.
US trade balance chart
Since 2018, the trade balance has noticeably reduced the deficit, which was caused by the Trump administration's policies aimed at this, mainly due to the introduction of tariffs and renegotiation of trade agreements.
The dollar index also received support during this period, but not only from a reduction in the trade deficit, but also from a tightening of monetary policy.
US dollar index chart
China's trade balance is mostly positive and its decline may indicate a slowdown in the global economy due to the enormous importance of this country's exports.
China trade balance chart
But even this is very unstable and can fluctuate significantly. At the same time, the decline in China’s trade balance since 2017 has not actually affected the decline of the yuan, which cannot be said about the sharp changes in this indicator. Thus, a sharp reduction in China’s trade balance caused the USD/CNY pair to rise by an average of 2-3 months.
USD/CNY pair chart
The euro is least susceptible to changes in the trade balance. Due to its structure and huge domestic market.
Eurozone trade balance chart
At the same time, the dynamics of the euro largely depends on the dynamics of other economies, as shown.
EUR/USD chart
Changes in a country's trade balance are a significant indicator and can affect the national currency if there are significant changes. But this indicator is very individual and should be analyzed together with other economic indicators.
A common argument is that a high trade deficit reduces the number of jobs in the United States. However, this argument is questionable. Money flows between nations hide the fact that, in general, Americans must sooner or later pay for their imports by reducing their exports.
Even if the United States could suspend all foreign trade activities at the moment, it would eliminate the country's long-term export industry, costing jobs that could have been generated in the short term.
In his 1990 book, Age of Diminished Expectations, MIT economist Paul Krugman argues that even short-term employment growth from a narrowing trade deficit is unlikely to occur. Suppose that with a prevailing unemployment rate of 5-7%, the US Congress refuses to establish import quotas that effectively affect foreign trade. This would effectively result in an immediate trade surplus (albeit short-lived as other countries would retaliate against American exports). The question is, will eliminating the trade deficit create more jobs in the short term? Hardly. Most economists believe the natural rate of unemployment in the United States is at least 5% and is likely to be higher. If import quotas limit foreign trade, where will the workers come from to make up the difference? The most likely result of an attempt to eliminate the trade balance deficit, according to P. Krugman, will be an increase in inflation.
This does not mean that the persistence of trade deficits is not unfavorable for the United States. For US residents to buy more foreign goods than are exported to other countries, it is necessary to take cash from some sources to compensate for the difference in the cost of exports and imports. This difference can be financed through external loans. As already noted, this is why the US 1983 became a net international debtor. As a result, US citizens will generally have to pay interest to the population of creditor countries, that is, give part of their income abroad. This will be the initial size of the trade balance deficit.
What is the reason for the high US trade deficit and the associated increase in foreign debt?
Most economists give this answer to this question. As noted in Chapter 4, the savings rate in the United States is much lower than in other countries. As a result, Americans consume a larger share of their income than people in other countries, allowing the latter to lend Americans money to buy more foreign goods.
Some researchers blame households and firms for their low savings rates, arguing that they create too many obligations. However, this statement can be questioned. While household and firm debt levels have certainly increased recently, private sector debt has not increased relative to US output. For example, consider the following figure, which reflects the share of non-financial debt in gross national product for the period 1970-1990.
In the USA, Germany and Japan. The US rate was the smallest, and recent increases have at least matched those in Germany and Japan.
Share of non-financial corporate debt in GNP in Germany, Japan and the USA. While many would agree that U.S. firms are too indebted, exacerbating the growing U.S. debt problem, the share of total nonfinancial corporate debt as a share of U.S. GNP remained relatively stable between 1970 and 1990. This figure is much lower than in Germany and Japan.
If it seems difficult to blame the high trade deficit and growing US foreign debt on the private sector, the culprit therefore lies with the government. Many economists believe that this is exactly the case. The main reason for the low savings rate is the persistent federal budget deficit; That is why a huge amount of funds are withdrawn, which could act as national savings. This in turn leads to a trade deficit; In the absence of accumulated savings in the country for investment, households * and firms take out loans abroad and buy goods there. The relationship between the federal budget deficit and the trade deficit is commonly referred to as the twin deficit problem.
Not all economists agree that the government is to blame for creating this situation. In fact, some economists believe that the trade deficit is not actually as large as official statistics indicate. On the one hand, US exports to other countries are underestimated because; 1) exporters have an incentive to understate sales volumes in order to reduce taxable income; 2) export licenses are required, and in some cases outright bans are imposed on the sale of goods related to national security - hence the lack of data, incomplete reporting and smuggling. Instead, import information is collected by a single government agency that collects revenue from tariffs on imported goods. Thus, information on imports is from reliable sources, but data on exports is greatly underestimated. Using data from 1987, St. Louis Federal Reserve Bank economist Mac Ott estimates that the US trade deficit is overstated by 10% to 15% annually. This does not solve the problem, but it shows that its scale is not as significant as many fear.
Sources. Krugman Paul, The Age of Diminished Expectations. - Cambridge (Mass.): MIT Press, 1990, chap. 4; Ott Mackt Is Trade Deficit as Big as It Seems? - Wall Street Journal, December 12, 1987,
p, 14. Figure 28-2 shows the US trade deficit at the beginning of 1992. As Table shows. 28-4, the US trade deficit with individual countries as a whole has increased, and the trade surplus with other countries has decreased. For example, the trade deficit with Japan has grown from $3.5 billion in early 1991 to more than $3.8 billion at the beginning of 1992. At the same time, the trade surplus with Western European countries decreased by $0.5 billion, and the trade deficit with Canada decreased only slightly.
Which is better, a fixed or floating exchange rate system?
Under a system of fixed exchange rates, changes that disturb the balance of payments equilibrium (for example, the discovery of gold deposits, changes in tastes or technology) require a reallocation of resources until equilibrium is restored. Similar changes that upset the balance sheet also require a redistribution of resources under a system of floating exchange rates. The main mechanisms that influence the redistribution of resources and restore balance of payments are the same for both systems: changes in the price level, income and interest rates.
US trade deficit. Although the US dollar has been on a downward trend since its sharp decline in 1985, the US trade deficit has continued to rise. In 1991 and early 1992 its size was significant. (Source: Economic Indicators)
Comparative Analysis of Fixed and Floating Exchange Rate Systems The main difference between the two systems is the mechanism by which the balance of payments is rebalanced. Under a gold or modified gold standard and a system of fixed exchange rates, gold must move from countries with balance of payments deficits to countries with balance of payments surpluses. Under a system of fixed exchange rates, a country with a balance of payments deficit would eventually experience a contraction in the money supply, while a country with a surplus would eventually experience an increase in the money supply. Under such a system, therefore, in a country with a positive balance of payments there will be inflation, and countries where there is a deficit in the balance of payments will be characterized by a decline in production. These are the “rules of the game” in a system of fixed exchange rates. When there is a balance of payments deficit in such a system, monetary and fiscal policies should be aimed at achieving balance of payments equilibrium. Other major goals (such as price stability and lower unemployment) will become less important.
Even if the balance of payments is in equilibrium, monetary and fiscal policy must be carried out taking into account the possible consequences that its violation may cause. For example, if there is a balance of payments equilibrium, but the unemployment rate is too high, then expansionary monetary policy may lead to a balance of payments deficit. Consequently, regulators are not entirely free to pursue their goals. Moreover, the rules are such that individual countries cannot pursue monetary and fiscal policies independently of their foreign trading partners. In a fixed exchange rate system, a government that decides to increase the rate of inflation in a country can export it to other countries. The same applies to the decline in production.
In short, a system of fixed exchange rates requires each state to subordinate all its main objectives to one goal - the achievement of equilibrium in the balance of payments. If a country does not intend to follow these rules (i.e. it sterilizes gold to prevent inflation or deflation), then the system will fail. In this case, a long-term chronic disequilibrium in the balance of payments will be established and official adjustments of exchange rates will be made occasionally (sometimes not so rarely). Figure 28-3 shows that the members of the European Monetary System (EMS), which includes many countries each with an independent central bank, actually coordinated their actions well. The exchange rates of these countries move together; To achieve this, each state must coordinate its stabilization policy.