SAJC 2024_H2 Econs_Favourable BOT_Students_Uploaded

ST ANDREW’S JUNIOR COLLEGE JC2 H2 ECONOMICS 2024 FAVOURABLE BALANCE OF TRADE We have thus far looked at the macroeconomic objectives of achieving economic growth, price stability and full employment. These are commonly referred to as the internal macroeconomic goals of a government. When these goals are achieved, there is internal economic stability within the country. In this set of notes, we turn our attention to the external macroeconomic goal of governments – achieving a favourable balance of trade position. A favourable balance of trade position is achieved when there is avoidance of large and persistent balance of trade deficit or having an improved balance of trade surplus. We will study why governments would want to pursue such a goal as well as the issues and consequences of non -attainment of this goal. We will then study the various policies that can be adopted by governments to achieve the desired external equilibrium. Important concepts and tools and analysis  Balance of trade surplus and deficit  Short term capital flows  Long term capital flows – Foreign Direct Investment  Balance of Payments Account components – Current account, capital and financial account* *Students are only expected to have an awareness of the components of the Balance of Payments. Key questions to consider 1. What is the balance of payments and how is the balance of trade related to it? 2. What does having a favourable balance of trade position mean? 3. Why do governments want to have a favourable balance of trade position? 4. What causes an unfavourable BOT position? 5. What happens when countries do not achieve a favourable balance of trade position? 6. How do governments try and achieve a favourable balance of trade position?

St. Andrew’s Junior College Economics Department 2024 2 Contents 1. The Balance of Payments ................................................................................................................................................ 3 1.1. Overview of the Balance of Payments Account ................................................................................................. 3 1.2. Structure of BOP ...................................................................................................................................................... 4 2. Balance of Trade Equilibrium ......................................................................................................................................... 7 3. MACROECONOMIC AIM: FAVOURABLE BALANCE OF TRADE POSITION .......................................................... 7 3.1. Benefits of favourable BOT Position .................................................................................................................... 7 4. MACROECONOMIC ISSUE: BALANCE OF TRADE DEFICIT .......