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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

For each of the following, indicate which type of government spending would justify a budget deficit and which would not.

a. Increased federal spending on Medicare

b. Increased spending on education

c. Increased spending on the space program

d. Increased spending on airports and air traffic control

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.

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

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.

What are the main components of the national savings and investment identity?
See all solutions

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