Answered: Is trade deficit always a problem?…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Is trade deficit always a problem? Support your answer with proper reasoning.

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Step 1

No, trade deficit is not always a bad thing. A country which runs a trade deficit in general imports more than it exports. This is not a bad thing, as it simply means that the country finds exports from other nations cheaper than its own exports to other nations. This will inadvertantly mean that the nation as a very strong currency, and that its currency has appreciated more with respect to the other nations. It also means that the nation has more capital inflow which is required to balance the trade deficit, to keep the balance of payments acocount balanced

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