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Chapter 10: Q 39. (page 267)

Occasionally, a government official will argue that

a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Is this possible?

Short Answer

Expert verified

No, this is not possible at all.

Step by step solution

01

Step 1. Definition

A trade surplus is defined asan economic measure of a constructive/positive balance of trade when a country's exports are more than its imports

A trade deficit is when there are exports less than imports, which is basically the opposite of a trade surplus.

02

Step 2.

When a country wants to increase investment from foreign firms, then there must be an outflow of domestic capital to other nations. And if a country wants to have a surplus then the country must export more than import, so these two contradictory situations will not occur at the same time. They may occur but not at the same time.

So it is not possible.

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Most popular questions from this chapter

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

If you observed a country with a rapidly growing

trade surplus over a period of a year or so, would you be more likely to believe that the country's economy was in a period of recession or of rapid growth? Explain.

Table 10.7 provides some hypothetical data on

macroeconomic accounts for three countries represented

by A, B, and C and measured in billions of currency

units. In Table 10.7, private household saving is SH,

tax revenue is T, government spending is G, and

investment spending is I.


ABC
SH700500600
T00500500
G600350650
I800400450

Table 10.7 Macroeconomic Accounts

a. Calculate the trade balance and the net inflow of

foreign saving for each country.

b. State whether each one has a trade surplus or

deficit (or balanced trade).

c. State whether each is a net lender or borrower

internationally and explain.

Describe a scenario in which a trade surplus benefits an economy and one in which a trade surplus is occurring in an economy that performs poorly. What key factor or factors are making the difference in the outcome that results from a trade surplus?

In recent decades, has the U.S. trade balance usually been in deficit, surplus, or balanced?
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