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Chapter 9: Problem 22

If imports exceed exports, is it a trade deficit or a trade surplus? What about if exports exceed imports?

Short Answer

Expert verified
If imports exceed exports, it is a trade deficit, as the country is buying more goods and services from foreign countries than it is selling. If exports exceed imports, it is a trade surplus, as the country is selling more goods and services to foreign countries than it is buying.

Step by step solution

01

Define Trade Deficit and Trade Surplus

A trade deficit occurs when a country's imports (goods and services bought from foreign countries) are greater than its exports (goods and services sold to foreign countries). In contrast, a trade surplus occurs when the country's exports exceed its imports.
02

Determine When Imports Exceed Exports

If imports exceed exports, it means that the country is buying more goods and services from foreign countries than it is selling. In this case, we are dealing with a trade deficit.
03

Determine When Exports Exceed Imports

If exports exceed imports, it means that the country is selling more goods and services to foreign countries than it is buying. In this case, we are dealing with a trade surplus.

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Most popular questions from this chapter

Occasionally, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Explain why such a statement is economically impossible.

If domestic investment increases, and there is no change in the amount of private and public saving, what must happen to the size of the trade deficit?

Explain the relationship between a current account deficit or surplus and the flow of funds.

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?

At one point Canada's GDP was \(\$ 1,800\) billion and its exports were \(\$ 542\) billion. What was Canada's export ratio at this time?
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