10.4 The Pros and Cons of Trade Deficits and Surpluses and The Difference Between Level of Trade and the Trade Balance

All of the following statements are true, except:

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A trade surplus will often involve an outflow of financial capital to other countries.

An increase in the trade surplus will increase financial capital inflows into an economy.

A trade surplus means that the domestic financial capital is in surplus within a country.

There is economic benefit from participating in international financial capital markets.

An increase in the trade surplus will increase financial capital inflows into an economy. 

A trade surplus will involve an outflow of financial capital to other countries. A trade surplus means that the domestic financial capital is in surplus within a country and can be invested in other countries.

All of these factors strongly influences a country's level of trade, except for one. Which is not a factor?

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the size of its economy

the value of its imports

its history of trade.

its geographic location

the value of its imports

Three factors strongly influence a nation’s level of trade: the size of its economy, its geographic location, and its history of trade. The value of a nation's imports determines a trade deficit or surplus, not the level of trade.

Which of the following could be a disadvantage of a trade deficit to an economy?

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The economy with a trade deficit will be an exporter of capital.

The economy with a trade deficit will be an importer of capital.

The economy with a trade deficit could have imports that offer more value.

The economy with a trade deficit will be a net lender to the rest of the world.

The economy with a trade deficit will be an importer of capital.

The economy with a trade deficit will be an importer of capital which means it will be a net borrower from abroad; which is a vulnerable position to be in for most countries.

Which of the following factors influence a country's level of trade?

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the size of its manufacturing sector

its geographic location

the types of goods it imports

the amount of private domestic investment

its geographic location

Three factors strongly influence a nation’s level of trade: (1) the size of its economy, (2) its geographic location, and (3) its history of trade.

All of the following statements are true, except:

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The percent of exports out of GDP indicates the degree of an economy's globalization.

The balance of trade tells us if the country is running a trade surplus or trade deficit.

Large economies struggle to do much of their trading internally.

Small economies tend to have higher ratios of exports and imports to GDP.

Large economies struggle to do much of their trading internally.

Large economies like the United States can do much of their trading internally, while small economies like Sweden have less ability to provide what they want internally and tend to have higher ratios of exports and imports to GDP. Nations that are neighbors tend to trade more, since costs of transportation and communication are lower.