c) The sx 4) In discussing international trade, we noted in class that the stati

Question

c) The sx 4) In discussing international trade, we noted in class that the statistic most often cited in the media and in business conversations is the Balance of Trade. H ow is the Balance of Trade defined? That is to say, e of the Trade Deficit or the Trade Surplus computed? (Be specific. "Exports minus Imports" is not specific enough). e that incurring a large Trade Deficit over a long period of time will cause conomic damage? 5) Most economists believ significant damage to the economy. How is it that large Trade Deficits can cause e (Your answer should include a consideration of the difference between the Balance of T hand, and the Balance of Payments on the other.) rade on the one

Explanation / Answer

Balance of trade pertains to the the trade of actual goods and services. It gives an idea of how competitive the economy is. Other parts of BOP acoounts can be related to financial factors in an economy. But balance of trade tells us how the real sector is doing in the economy. It is calculated as Exports of goods and services less imports of the same. A positive balance tells us that the economy is more competitive and is a net exporter of real goods and services. Vice-versa holds true for a negative balance.

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