IGCSE Economics Paper-2: Specimen Questions with Answers 13 - 14 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 13 (3 of 5 Based on Passage)

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What does the growth in the export show?

Explanation

Growth in the exports is an encouraging sign for the economy. Exports benefit the economy in the following ways.

  • Employment. Growth in exports leads to creation of employment. For example, the car exports growth has led to the creation of many jobs in car industries, such as BMW factory in Oxford, and Nissan in Sunderland.
  • Economic growth. One of the components of aggregate demand is exports. Rise in exports will lead to the increase in aggregate demand and will cause a higher economic growth. It can also influence the service industry. For example, in Sunderland the success of car exports will help the local economy from increased spending.

  • Current account deficit. In determining the current account deficits exports play a large role. If exports of a country are less than the imports then there will be a deficit in the balance of current account.

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.

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