IGCSE Development Studies: Specimen Questions with Answers 51 - 52 of 98

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Balance of Trade

Question 51 (1 of 7 Based on Passage)

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What are the problems associated with current account deficit?

Explanation

Problems of Current Account Deficit Are

  • Foreigners have greater claim on domestic assets.

  • Large deficit could be unsustainable, if financed from abroad.

  • It may indicate unbalanced economy- focused on short term consumption rather than longer investment in export sector.

  • Large deficit could cause depreciation in the exchange rate and cost push inflation.

  • For countries with fixed exchange rate it may indicate they have become uncompetitive due to higher inflation and if exports over-priced reduce domestic demand.

Question 52 (2 of 7 Based on Passage)

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What do you mean by balance of trade?

Explanation

The balance of trade is the difference between the monetary value of exports and imports in an economy over a certain period. It is one of the key indicators of economy. It deals with the exports and imports of visible items only and considers only merchandise exports and imports only.

Importance of Balance of Trade Are

  • It shows how a country competes in a global market place

  • It determines the health of economy and its relationship with the rest of the world.

  • It includes physical goods and intangible services.

  • Important piece of understanding the global puzzle of international trade.

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