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Chapter 10: Q. 29 (page 266)

Does a trade surplus help to guarantee strong economic growth?

Short Answer

Expert verified

No, not always.

Step by step solution

01

Step1. Introduction

Trade surplus refers to a situation in which the exports exceed imports. Or, in other words domestic savings exceed domestic investments.

02

Step2. Explanation

Trade surplus can guarantee economic growth if it is caused due to increased export (implies improved production and hence demand) or due to reduced imports (implies self reliance of the economy).

Any other reason other than these do not guarantee economic growth.

For instance, if during recession, the domestic demand shall fall and hence the imports. Exports are expected to continue at the same level. This shall lead to a trade surplus but is not good as it is indicative of recession in the economy and not economic growth.

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Most popular questions from this chapter

How did large trade deficits hurt the East Asian countries in the mid 1980s? (Recall that trade deficits are equivalent to inflows of financial capital from abroad.)

If a country is a big exporter, is it more exposed to

global financial crises?

State whether each of the following events involves a financial flow to the Mexican economy or a financial flow out of the Mexican economy:

(a) Mexico imports services from Japan.

(b) Mexico exports goods to Canada.

(c) U.S. investors receive a return from past financial investments in Mexico.

Both the United States and global economies are booming. Will U.S. imports and/or exports increase?

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.
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