Answer to Question #209952 in Macroeconomics for jean marie

Question

a.   (i) Distinguish between balance of trade and balance of payment.             

(ii) Why do most developing countries experience balance of payment deficit?

(iii) Explain the main factors that influence investment in Kenya                 

Illustrate the usefulness of Phillips Curve in Macroeconomic management

Answer 1

A.The balance of trade is the difference between exports of goods and imports of goods while the balance of payments is the difference between the inflow of foreign exchange and the outflow of foreign exchange. The net effect of balance of trade is either positive, negative or zero.

• 1b.most developing countries experience balance of payments because of a)Non-price competitiveness.b)Low levels of investment in human capital. c) Excessive growth in other countries d) low level of investment in human capital
• 1c.Factors that influence investment in Kenya are: a) Interest rate-investment is financed either out of current savings or by borrowing.b) Economic growth which depends on changes in demand.c) Availability of finance from the banks which enables investment.d) Confidence firms invest ionly if they are confident about future cost, economic prospects and demand.
• B. The Philip's curve is useful since it shows relationship between employment and inflation in an economy.