IGCSE Economics Paper-2: Specimen Questions with Answers 14 - 15 of 100

Passage

Indonesia booked a trade surplus of US $ 1.27 billion in June as both exports and imports rose from the slump recorded in May, signaling increasing economic activity as the country and its trading partners have begun to lift coronavirus-induced restrictions.

Exports were up 2.28 percent year-on-year (yoy) in June at $ 12.03 billion, the first growth recorded in four months, thanks to rising shipments of manufactured and agricultural goods, Statistics Indonesia (BPS)

Question 14 (4 of 5 Based on Passage)

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What is the effect of trade surplus?

Explanation

Employment and economic growth may be generated through trade surplus but it also leads to a rise in prices and interest rates in the economy.

  • A country՚s currency value is also influenced by trade balance in the global markets; it allows a country to control much of its currency through trade.
  • A country՚s currency is strengthened through trade surplus in comparison to other countries which affects the currency exchange rates however; it depends on the proportion of goods and services of a country as compared to other countries and other market factors as well.
  • A trade surplus means high demand of country՚s good in the foreign market when its focus is on the trade effects, which causes the price of goods to rise and leads to strengthening of the domestic currency.

Question 15 (5 of 5 Based on Passage)

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What is meant by trade surplus?

Explanation

A trade surplus is supposed to be a good indicator of a nation՚s economic health it can make imports from other nations will be cheaper.

  • When the value of goods exported is higher than the value of goods imported a trade surplus is said to occur. Thus, it means that the net inflow of domestic currency from the foreign market is greater than the outflow of the domestic currency.
  • Trade surplus helps in positive measurement of the country՚s balance of trade. Tarde surplus is the reverse of trade deficit which means when the value of imports is greater than exports.
  • When the products are services are produced in home country and sold to the foreign country, whereas, imports refer to the goods and services purchased from foreign country.
  • A country has more control of it՚s a currency when there is a trade surplus and it reduces the risk of another country selling it off.

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