The Balance of Trade
Balance of trade or net exports, is defined as "the sum of the money gained by a given economy by selling imports, minus the costs of buying imports." Hence, when the exports exceed the imports, there is a positive balance of trade known as a trade surplus. On the contrary, when the imports exceed the exports, there is a negative balance of trade know as a trade deficit. Trade surplus or trade deficit is affected by the following components: "prices of goods manufactured; exchange rates; trade agreements or barriers; other tax, tariff and trade measures." (Wikepedia)The balance of trade comprises Balance of Payments, where it is defined as "a measure of the payments that flow into and out from a particular country and to other countries." Hence, when a money inflow exceeds money outflow, the country has a positive balance of payment. On the contrary, when the money outflow exceeds the money inflow, the country has a negative bal
The government plays a crucial role in this task. They must create or maintain fiscal policies that deal with critical aspects like trade growth, savings, and a healthy Balance of Payment level. They must take into consideration the factors that affect transactions made by the country such as exports, imports, and investments in equity and/debt securities. Furthermore, balance of payment can be divided into three catergories: "(1) current account coming from trade in goods and services and transfer payments made from abroad; capital account coming from purchases and sales of assets such as stocks, bonds, and land; (3) foreign reserves coming from reserve account such as gold, foreign and exchanges." (Wikipedia) ance of payment. Exports and increase of foreigned-owned assets in the country are factors that determine money inflow while imports and increases of owned assets abroad are factors that determine money outflow. (Wikipe
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