Is the trade deficit in goods and services a good indicator of a country's economic strength?...
Is the trade deficit in goods and services a good indicator of a country's economic strength? Why or why not? Discuss your answer by explaining what the trade deficit is and how it relates with other important indicators. When is a trade deficit likely to lead future problems?
Homework Answers
Trade deficit can be both good or bad and its impact depends on what the deficit causing imports are used for. Thus whether it is strength's indicator depends on the use to which it is put into. If it is used for productive investment then it can cause growth in future. However trade surplus is usually good for an economy.
Trade deficit is value of imports - value of exports. It is actually a component of the GDP of a country and thus os related to the level of productive activity taking place in a country.
When however trade deficit reaches more than 15% or 20% then it can be a signal of crisis.
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