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Chapter 23: Q. 29 (page 576)

Does a trade surplus help to guarantee strong economic growth?

Short Answer

Expert verified

A trade surplus does not help to guarantee strong economic growth .

Step by step solution

01

Step 1. Trade surplus

When a country's economy is in recession, unemployment is high and GDP is low. Consumption is very low in this economy, and exports exceed imports due to a fall in prices of domestic goods. In contrast, these economies' trade surpluses imply that domestic savings exceed domestic investment, and households and firms invest in the rest of the world.

02

Step 2. Reason

Because trade balances can be in surplus during recessions, having a surplus does not ensure economic growth.

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Most popular questions from this chapter

Many think that the size of a trade deficit is due to a lack of competitiveness of domestic sectors, such as autos. Explain why this is not true.

State whether each of the following events involves a financial flow to the U.S. economy or away from the U.S. economy:

  1. Export sales to Germany
  2. Returns paid on past U.S. financial investments in Brazil
  3. Foreign aid from the U.S. government to Egypt
  4. Imported oil from the Russian Federation
  5. Japanese investors buying U.S. real estate

What are the two main sides of the national savings

and investment identity?

What three factors will determine whether a nation has a higher or lower share of trade relative to its GDP?

Why does a recession cause a trade deficit to increase?
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