Tag: balance of trade

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Talk is cheap

The article linked to below is an extract (printed in the Guardian) from a new book by Dan Atkinson and Larry Elliott (economics editor for the Guardian). The introduction to the article summarises its theme quite effectively:
“We don’t manufacture anything any more. Most of the world won’t buy our records or watch our films. Only our gift of the gab is keeping Britain’s economy ticking over. But how long can the hot air last, ask Larry Elliott and Dan Atkinson “

Talk is cheap Guardian (18/5/07)


Questions
1. Explain the underlying trade performance of the UK in recent years for (a) trade in goods and (b) trade in services.
2. “Labour believes Britain is at the cutting edge of the knowledge economy and that Britain’s well-educated (sic), highly skilled (sic) and entrepreneurial (sic) workers are ready to kick German, American, Japanese and Chinese butt all round the global village.” Discuss the extent to which this is true.
3. Assess the extent to which the theory of comparative advantage can help explain the differences in trade performance outlined in the article.
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Everything’s almost free in America

In March 2007, the pound reached a record high against the dollar. This made it an excellent time for UK tourists to visit the USA with prices appearing relatively low thanks to the exchange rate. These exchange rate values also affected the balance of payments of both the USA and the UK and the article below looks at the economic impact of the high exchange rate against the dollar.

Why everything’s almost free in America (and why it won’t last) Guardian
(23/4/07)

Questions

1. Explain the principal reasons for the change that has taken place in the exchange rate in recent years.
2. “On a PPP basis, a pound should buy $1.60”. Explain what is meant by this statement.
3. “My bet is that within a year the rate will be closer to $1.60 than $2. Maybe a lot closer.” Assess the impact of this possible outcome on economic growth and inflation in the UK.
4. Examine the likely impact of the high exchange rate on the balance of payments situation of (a) the USA and (b) the UK.