Question

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?

Short answer

Overall inflow for surplus and outflow for deficit.

Step-by-step solution

Step 1. Trade balance 

Balance of trade is also known by other names like commercial balance or net exports , which means difference of exports of a country from imports of country in terms of money. There can be two types of result. The outcomes are explained below:

outcomes

Trade deficit is a situation when imports exceed exports.

Trade surplus is a situation when exports exceed imports.

Step 3. Explanation

type of situation where exports exceed imports depict trade surplus. It is when balance of trade shows positive balance. here purchase of foreign made goods is less than sale of domestic produced goods.

Similarly, trade deficit means imports are more, i.e. purchasing. So, money will flow out. Hence, trade deficit is a situation of overall outflow of financial capital.