Question 7 Answer

(a) Countries trade because they do not posses the natural resources required to manufacture particular commodities.

Trade will also occur between countries when there are differences in climatic conditions.

(b) Visible trade involves physical goods being moved across international borders for example, automobile, oil and bauxite. However, Invisible trade refers to the trade of services for example, tourism, shipping and dividend payments.

(c) (i) Caribbean countries experience balance of payments deficits because they tend to mainly import goods of high value e.g. automobiles, machinery and equipment, processed foods and manufactured goods such as footwear and clothing. Their main exports on the other hand tend to be raw materials and agricultural produce which are lower in value than goods imported.

Balance of payment deficits also occur because of declining markets. Trade liberalization has impacted protected markets for the Caribbean.

(ii) Balance of payments deficits affect a country’s level of economic activity. Deficits mean there is not enough money to import the goods and services required by citizens.

Balance of payments deficits also increase a country’s debt burden. Countries may need to borrow to obtain funds for economic activity.

(iii) Tariffs(taxes on imports)

Taxes increase the cost of items imported and therefore will discourage imports. This may encourage the purchase of cheaper local imports.

Exchange Control

This is various forms of control by government on the purchase and sale of foreign currencies by citizens and foreigners. Example: limiting the amount of foreign exchange that residents can leave the country with, banning the use of foreign currencies locally and having a fixed exchange rate.

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