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Chapter 23: Q 25 (page 577)

Does a trade surplus mean an overall inflow of

financial capital to an economy, or an overall outflow of

financial capital? What about a trade deficit?

Short Answer

Expert verified

Overall inflow for surplus and outflow for deficit.

Step by step solution

01

Step 1. Trade balance 

Balance of trade is also known by other names like commercial balance or net exports , which means difference of exports of a country from imports of country in terms of money. There can be two types of result. The outcomes are explained below:

02

outcomes

Trade deficit is a situation when imports exceed exports.

Trade surplus is a situation when exports exceed imports.

03

Step 3. Explanation

type of situation where exports exceed imports depict trade surplus. It is when balance of trade shows positive balance. here purchase of foreign made goods is less than sale of domestic produced goods.

Similarly, trade deficit means imports are more, i.e. purchasing. So, money will flow out. Hence, trade deficit is a situation of overall outflow of financial capital.

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Most popular questions from this chapter

Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy.

a. Living in an especially large country

b. Having a domestic investment rate much higher than the domestic savings rate

c. Having many other large economies geographically nearby

d. Having an especially large budget deficit

e. Having countries with a tradition of strong protectionist legislation shutting out imports

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

Some economists warn that the persistent trade deficits and a negative current account balance that the United States has run will be a problem in the long run. Do you agree or not? Explain your answer.

In recent decades, has the U.S. trade balance

usually been in deficit, surplus, or balanced?

Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1%of Germany鈥檚 GDP; private savings is 20%of GDP, and physical investment is 18%of GDP.

a. Based on the national saving and investment identity, what is the current account balance?

b. If the government budget surplus falls to zero, how will this affect the current account balance?
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