Chapter 23: Q. 13 (page 576)
What determines the size of a country’s trade deficit?
The amount of private and state savings, as well as domestic investment, determines a country's trade imbalance.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Does a trade surplus help to guarantee strong economic growth?
Occasionally, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Explain why such a statement is economically impossible.
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?
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.
| A | B | C | |
| SH | 700 | 500 | 600 |
| T | 00 | 500 | 500 |
| G | 600 | 350 | 650 |
| I | 800 | 400 | 450 |
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.
If the trade deficit of the United States increases, how is the current account balance affected?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
