Question

Provide some real-world examples which illumistrate how international trade or balance of trade is affected by cost of labor, inflation, national income, exchange rate, credit condition, and government policies?

Answer 1

When there will be a higher cost of labour in United States of America, it will mean that other country will not be prefering to to do their work in America because it will increase in their overall cost of capital and hence, American dollar will be appreciating because it will have a relative strength but the overall balance of trade will decrease due to decrease in export

In case of higher inflation, American dollar will be having us more strength against another currency because there will be higher cost of goods and services and it would also lead to a negative impact on the balance of trade because of low export

When the national income of the country will be going high, it will mean that there will be a relative strength of American dollar and it would be leading into a adverse impact on balance of trade and vice versa

The exchange rate of the American currency will be appreciating it will also have an adverse impact on the overall balance of trade and vice-versa

Credit condition is also reflecting availability of credit because when there will be a better availability of the Credit & when credit will be available at a lower rate than it would be leading into a higher amount of export

and the government policies would be favourable to exporters as it would be leading into an increase in the American balance of trade and vice versa .