GraceDuDu
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Assess the policies that could be used to reduce the UK's balance of trade deficit. (25 marks)
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FenixZ
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Is this your homework or something...


Increased tax so more government revenue
Evaluation: laffer curve

Cuts in spending so less money being spent
Evaluation: Trade off of what the money was being spent on
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JamesJ4321
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(Original post by GraceDuDu)
Assess the policies that could be used to reduce the UK's balance of trade deficit. (25 marks)
I would suggest using Expenditure reducing policies (decreasing AD = decreased import spending) and Expenditure switching policies (protectionism) and then growing the supply side through investment into exporting industries, like boosting productivity, improving infrastructure to cut costs of production which will all improve international competitiveness.

Hope it helps,
James
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username3515912
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(Original post by FenixZ)
Is this your homework or something...


Increased tax so more government revenue
Evaluation: laffer curve

Cuts in spending so less money being spent
Evaluation: Trade off of what the money was being spent on
I think you are referring to budget deficit. Trade deficit is about imports and exports
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username2057011
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improve productivity by fiscal supply side policies

lower inflation

lower exchange rate

negotiate removal of export tarrifs

subsidise infant industries for Long run improvement
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username3515912
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(Original post by GraceDuDu)
Assess the policies that could be used to reduce the UK's balance of trade deficit. (25 marks)
A trade deficit is where the value of imports is greater than the value of exports leading to a net loss.

- Value of the pound. Using monetary policy, reducing interest rates would lead to outflow of the hot money flow, causing the value of the pound to fall. (Hot money flow is where investors invest in other banks due to higher reward and so More convert their pounds into other currencies and so the supply of pounds are increased and the value falls. This makes it more expensive to import due to the lower purchasing Power and so the value of imports fall.

Other factors to consider:

- Productivity: High productivity can lead to lower unit costs and lower prices making the U.K. more globally competitive and so increasing value of exports. (Reference to U.K. being 20% less productive than the average G7 country).

- Protectionst policy: If tariffs (tax on imports) are implemented, it is more expensive to import goods and services due to the tax which needs to be payed on top. Quotas (limit on number of imports) only allow a certain amount to enter a country, thus reducing the value of the imports.
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FenixZ
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(Original post by TheArabEconomist)
I think you are referring to budget deficit. Trade deficit is about imports and exports
Ah yeah sorry cheers for pointing that out
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GraceDuDu
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(Original post by TheArabEconomist)
A trade deficit is where the value of imports is greater than the value of exports leading to a net loss.

- Value of the pound. Using monetary policy, reducing interest rates would lead to outflow of the hot money flow, causing the value of the pound to fall. (Hot money flow is where investors invest in other banks due to higher reward and so More convert their pounds into other currencies and so the supply of pounds are increased and the value falls. This makes it more expensive to import due to the lower purchasing Power and so the value of imports fall.

Other factors to consider:

- Productivity: High productivity can lead to lower unit costs and lower prices making the U.K. more globally competitive and so increasing value of exports. (Reference to U.K. being 20% less productive than the average G7 country).

- Protectionst policy: If tariffs (tax on imports) are implemented, it is more expensive to import goods and services due to the tax which needs to be payed on top. Quotas (limit on number of imports) only allow a certain amount to enter a country, thus reducing the value of the imports.
Thank a lot!! but how to draw the diagram to support my answer?
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username3515912
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(Original post by GraceDuDu)
Thank a lot!! but how to draw the diagram to support my answer?
For the productity point, you could draw a Keynesian graph showing LRAS increasing/shifting to the right and possibly explaining that this is due to an increase in the production process (such as increased labour, raw materials) which leads to an increase in the productive potential, causing it to shift outwards.
Furthermore, you could add a externality graph showing the effect to society of an increase in productivity which could lead to increased pollution in the atmosphere as economic growth is likely to take place. You can then use this to explain that economic growth may lead to demand pull inflation and also could draw a demand and supply diagram.

As the question doesn’t state use diagrams, you wouldn’t be losing out on any marks if your analysis is detailed and contextualised.
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GraceDuDu
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(Original post by TheArabEconomist)
For the productity point, you could draw a Keynesian graph showing LRAS increasing/shifting to the right and possibly explaining that this is due to an increase in the production process (such as increased labour, raw materials) which leads to an increase in the productive potential, causing it to shift outwards.
Furthermore, you could add a externality graph showing the effect to society of an increase in productivity which could lead to increased pollution in the atmosphere as economic growth is likely to take place. You can then use this to explain that economic growth may lead to demand pull inflation and also could draw a demand and supply diagram.

As the question doesn’t state use diagrams, you wouldn’t be losing out on any marks if your analysis is detailed and contextualised.
Thank you!!!!
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