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Chapter 10: Q 39. (page 267)

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?

Short Answer

Expert verified

No, this is not possible at all.

Step by step solution

01

Step 1. Definition

A trade surplus is defined asan economic measure of a constructive/positive balance of trade when a country's exports are more than its imports

A trade deficit is when there are exports less than imports, which is basically the opposite of a trade surplus.

02

Step 2.

When a country wants to increase investment from foreign firms, then there must be an outflow of domestic capital to other nations. And if a country wants to have a surplus then the country must export more than import, so these two contradictory situations will not occur at the same time. They may occur but not at the same time.

So it is not possible.

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