Question

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.

Short answer

This statement is economically impossible as a country cannot have trade surplus as well as inflow of financial capital from abroad.

Step-by-step solution

Step 1. Given

A government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad ocassionally.

Step 2. Reason

A country cannot have a trade surplus and financial capital inflow from abroad because when a country has a trade surplus, domestic capital flows into the economy due to an excess of exports over imports, while financial capital flows out of the domestic economy to the rest of the world. Only when a country's trade balance is in deficit can it see inflows of financial capital.

As a result, both a trade surplus and a financial capital inflow are economically impossible.