Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
7.5 7.5
0.0 0.0
the size of a trade
-2.5 -2.5 imbalance?
-5.0 -5.0
-7.5 -7.5
-10.0 -10.0
-12.5 -12.5
98 99 00 01 02 03 04 05 06 07 08
-25 -25
important in this chart?
-30 -30
-35 -35
But what are the wider
economic effects?
USD (billions)
-40 -40
billions
-45 -45
-50 -50
-55 -55
-60 -60
-65 -65
-70 -70
01 02 03 04 05 06 07 08
Annual growth of real GDP Trade balance in goods and services $bn
Source: Reuters EcoWin
Expenditure switching
• Expenditure switching:
– Change in relative prices of X and M
– Changes incentives for consumers
– Changes profitability of exporting
– Can be caused by
• Movement in the exchange rate
• Introduction of import tariffs and other forms
of protectionism
• Period of high or low relative inflation
– Key point is whether trade volumes respond
to changing prices
– I.e. price elasticity of demand for X and M
Does a depreciation cut the trade deficit?
110 110
105 105
100 100
95 95
-25 -25
-30 -30
-35 -35
USD (billions)
-40 -40
billions
-45 -45
-50 -50
-55 -55
-60 -60
-65 -65
-70 -70
00 01 02 03 04 05 06 07 08 09
100 100
95 95
Sterling index
90 90
85 85
80 80
75 75
70 70
Quarterly balance £ (billions)
0.0 0.0
-2.5 -2.5
-5.0 -5.0
billions
-7.5 -7.5
-10.0 -10.0
-12.5 -12.5
-15.0 -15.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Trade
Ped X + Ped M > 1 for
surplus
the trade balance to
improve
Time
C
A
Trade B
deficit
Expenditure Reduction
• Expenditure reduction
– Cutting aggregate demand
– Direct effect on consumption and therefore
demand for imports:
– Possible routes:
• Higher direct taxes – lower disposable
income
• Low taxes on saving
• Increased interest rates – to dampen
consumption
• Cut in government spending
– Focus here is on income elasticity of
demand for imports
Supply-side policies
135
130 France
125
Germany
120
UK
115
US
110
105
100
95
1992 1994 1996 1998 2000 2002 2004 2006
Source: ONS
Business investment
Comparison, 1992-2007
Per cent of GDP in current prices
14
12
Germany
France
10
UK
US
8
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: OECD
France
Germany
2.5
UK
US
2.0
1.5
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
Source: OECD
400 400
350 350
Imports
GBP (billions)
300 300
billions
250 Exports 250
200 200
150 150
100 100
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07