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

Step1. Introduction

Trade deficit is a situation when imports exceed exports.

Trade surplus is a situation when exports exceed imports.

Balanced trade is a situation when exports and imports are equal.

Step2. Explanation

In trade surplus, it implies export exceed imports. Export means selling of goods and services outside the country. As goods are sold, money flows in. Hence, trade surplus is a situation of overall inflow of financial capital.

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.