Question

Explain why a U. S. recession that occurs as the rest of the world is expanding will tend to reduce the U. S. Trade deficit.

Answer 1

Trade deficit occurs when the local economy is importing more and exporting less. At the time of recession, the income of the consumer will fall and that will decease the consumption they are doing. At a lower consumption rate the imports will decrease and that will decrease the trade deficit in the market.

Moreover, with an expansion in the world market, the US exports will increase as they will be consuming more in comparison this will increase the exports and lead to surplus in the current account.