Question

Trade policies a. alter the trade balance because they alter imports of the country that implemented them. b. alter the trade balance because they alter exports of the country that implemented them?

1) True
2) False

Answer 1

Trade policies can indeed alter a country's trade balance by influencing both imports and exports, and these changes can be due to tariffs, quotas, and subsidies. A balanced trade does not imply a balanced trade with each individual trading partner. Exchange rate variations can affect international trade flows, potentially prompting governments to fix exchange rates to stabilize trade.

Step-by-step explanation:

Trade policies have the capacity to alter a country's trade balance by changing both the import and export levels. These policies can include tariffs, quotas, and subsidies that directly affect the amounts of goods and services a nation buys from and sells to other countries. In particular, imposing tariffs or quotas can lead to a reduction in imports, while subsidies can increase domestic exports by making them cheaper for foreign buyers.

Additionally, when a country signs international trade agreements, it commits to certain levels of free trade which can also influence its trade balance. However, it is key to note that a balanced trade, where exports equal imports, does not necessarily mean that the country has a balanced trade with each individual trading partner.

Changes in exchange rates can significantly impact trade by altering the cost and competitiveness of a country's exports and imports. This can cause governments to consider fixing exchange rates to maintain stable international trade flows, especially when trade comprises a considerable part of the nation's economy.