Question

Describe a scenario in which a trade surplus benefits an economy and one in which a trade surplus is occurring in an economy that performs poorly. What key factors or factors are making the difference in the outcome that results from a trade surplus?

Short answer

A trade surplus benefits an economy because it signifies a large inflow of foreign capital, many goods and services are consumed with foreign dollars which increases the money circulating in the economy. That will increase domestic demand as the money supply is greater.
A trade surplus at the wrong time, however, during a period of high inflation can have a negative result, as the high level of domestic demand and money supply may inflate the cost of limited goods in the country, A country with a surplus means it exports more than it imports. This means that there are fewer goods domestically, if this becomes too skewed, there will be more money than goods to go around, resulting in inflation and a devaluing of currency in the long run.
The key factor in trade surplus outcomes is at what stage the economy is at, expansionary or recessionary.

Step-by-step solution

Step 1. Trade Surplus

A trade surplus is an economic measure of a positive balance of trade, where a country's exports exceed its imports.

Step 2. Explanation

A trade surplus benefits an economy because it signifies a large inflow of foreign capital, many goods and services are consumed with foreign dollars which increases the money circulating in the economy. That will increase domestic demand as the money supply is greater.
A trade surplus at the wrong time, however, during a period of high inflation can have a negative result, as the high level of domestic demand and money supply may inflate the cost of limited goods in the country, A country with a surplus means it exports more than it imports. This means that there are fewer goods domestically, if this becomes too skewed, there will be more money than goods to go around, resulting in inflation and a devaluing of currency in the long run.
The key factor in trade surplus outcomes is at what stage the economy is at, expansionary or recessionary.