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Chapter 23: Q. 15 (page 576)

Why does a recession cause a trade deficit to increase?

Short Answer

Expert verified

During a recession, incomes fall, and consumers buy fewer goods, including imports which leads to a increase in trade deficit.

Step by step solution

01

Step 1. Trade deficit

When a country's imports surpass its exports during a specific time period, it has a trade deficit.

02

Step 2. Reason

During a recession, incomes fall, and consumers buy less goods, including imports. This causes a trade deficit to increase.

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Most popular questions from this chapter

If foreign investors buy more U.S. stocks and bonds, how would that show up in the current account balance?

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savings and investment identity?

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If the trade deficit of the United States increases, how is the current account balance affected?
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