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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

In what way does comparing a country's exports to GDP reflect its degree of globalization?

Why does a recession cause a trade deficit to increase?

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.

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?

A government official announces a new policy. The country wishes to eliminate its trade deficit, but will strongly encourage financial investment from foreign firms. Explain why such a statement is contradictory.
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