URGENT 8 HOURS DEADLINE Brief Summary oF Macroeconomics chapters 5 and 12 - Essay Example

it is necessary to take note the total net export of goods and services which are also known as the Trade Balance given that a healthy economic activity should not have excessively large amount of total net import as compared with the net export. (p. 118) What happens when the total net import exceeds the total net export is that the country may eventually feel the negative economic consequences of not having sufficient money that flows within the domestic market. When this happen, there is a strong possibility that the normal domestic demand and supply for goods and services will be disrupted.

In worst case scenario, it is possible for some domestic companies to implement massive lay-offs to ensure the business profitability and stability. Therefore, unemployment rate in the long-run is expected to increase. The same theory and economic consequences applies when a country’s net capital outflow of domestic lending abroad exceeds the total amount of foreign lending that enters the country. (pp. 118 – 119) Trade Balance uses the formula S – I and NX respectively (p. 118 – 119).

In other words, a Trade Deficit and Trade Surplus occur in case the total Net Output and Trade Balance is negative and positive respectively (p. 119). Trade Balance occurs only when the total Net Capital Outflow and Trade Balance is equals to ZERO. It means that the total value of import is equal to the total value of export. A Bilateral Trade occurs when two countries agree to enter into a regular trading contract. However, it is not possible for a country to have experience a Bilateral Trade Balance. (p. 120) For instance: There is an agreement between China and U.S. to strengthen their import and export activities within one another.

Even though both countries agreed to import and export goods and services, it is not possible for both countries to experience equal import and export. For this reason, it is possible to say that China has recently experienced Bilateral Trade