Sunday 22 March 2009

balance of trade deficit

Balance of trade deficit
First of all, we should know what is balance of trade, balance of trade is the relationship between imports and exports , and when the exports greater than imports is balance of trade surplus, which is injection exceed leakage, and when exports less than imports is balance of trade deficit which is injection less than leakage.
What may lead to balance of trade deficit ?
1.Exchange rate increase, the value of money goes up , other countries do not want buy products form this country.
2.Demand of domestic products goes down
3.The value of imports goes down
4.The price of domestic products very high
5.The productivity is lower
How we can solve this problem.
1)Increase productivity. For example can use divide the labour or specialization.\
2)Decrease exchange rate.which is decrease interest rate.
3)More government spending
4)Increase tariff
5)Increase the standard of imports.

1 comment:

chris sivewright said...

"2)Decrease exchange rate, which can increase interest rate."

how does this make sense?