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5. (i) Distinguish between a Balance of Trade surplus and a Balance of Trade deficit - Leaving Cert Economics - Question 5 - 2007
Question 5
5. (i) Distinguish between a Balance of Trade surplus and a Balance of Trade deficit. Balance of Trade surplus: Visible exports are greater than Visible imports. Ba... show full transcript
Worked Solution & Example Answer:5. (i) Distinguish between a Balance of Trade surplus and a Balance of Trade deficit - Leaving Cert Economics - Question 5 - 2007
Step 1
Distinguish between a Balance of Trade surplus and a Balance of Trade deficit.
Answer
A Balance of Trade surplus occurs when a country's visible exports exceed its visible imports. This signifies a favorable trade situation where more goods are sold abroad than are purchased from other countries. Conversely, a Balance of Trade deficit arises when visible imports surpass visible exports, indicating that a country is buying more from the world than it is selling. This situation can lead to dependence on foreign goods and can affect the economy negatively in the long run.
Step 2
Using the partially completed table above calculate Ireland's Balance of Trade with each country / region (A, B, C above) and state whether it is a surplus or deficit in each case.
Answer
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Country A:
- Visible Exports: €18,000 million
- Visible Imports: €20,500 million
- Balance of Trade: €18,000 - €20,500 = -€2,500 million (Deficit)
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Other EU countries:
- Visible Exports: €40,000 million
- Visible Imports: €15,000 million
- Balance of Trade: €40,000 - €15,000 = €25,000 million (Surplus)
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Country C:
- Visible Exports: €8,500 million
- Visible Imports: €0 million
- Balance of Trade: €8,500 - €0 = €8,500 million (Surplus)
Step 3
State and explain THREE reasons why exports are important for the Irish economy.
Answer
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Job Creation: Exports stimulate demand for goods produced within Ireland, which can lead to the creation of new jobs and the expansion of existing businesses. As firms increase production to meet export demands, they may need to hire more employees.
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Increased GNP / Economic Growth: Export revenues contribute directly to the Gross National Product (GNP) of a country. The money earned from exports can reinvest into the economy, leading to more income and economic growth.
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Increased Sales / Profits: By accessing foreign markets, Irish companies can sell their excess production, which can enhance their profits and ensure better financial stability.
Step 4
State TWO other examples of invisible exports.
Answer
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Foreigners traveling in Ireland: Income generated from tourists visiting Ireland is considered an invisible export as they spend money on services and goods, boosting the economy.
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Foreigners using Irish transport services: When foreign individuals or businesses utilize Irish transport services (like airlines or shipping), it generates revenue that counts as an invisible export.
Step 5
State whether the euro (€) has gone up or down in value relative to the dollar ($). Explain your answer.
Answer
The euro has gone up in value relative to the dollar because it increased from €1 = 1.30 in Year 2. This means that each euro can now purchase more dollars than before, indicating an appreciation of the euro.
Step 6
State and explain the possible effect which the above change may have on Ireland’s exports to the US and Ireland’s imports from the US.
Answer
Effect on Ireland’s exports to the US:
- With the euro becoming stronger, Irish goods will become more expensive for US consumers, likely leading to a decrease in exports from Ireland to the US.
Effect on Ireland’s imports from the US:
- Conversely, US goods will become cheaper for Irish consumers, potentially resulting in an increase in imports from the US.