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During the 1800s when it was seen as having the world's strongest economy, Great Britain often...

During the 1800s when it was seen as having the world's strongest economy, Great Britain often ran trade deficits with its trading partners. According to some economists, these trade deficits were to Britain's advantage. What was the reason that those economists did not see trade deficits as an economic problem?

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Answer #1

The economists did not see the deficit to be an economic problem.

This is because having trade deficit leads to weakening of the currency.

This leads to exports becoming cheaper and imports becoming expensive.

This leads to positive net exports for the economy, leading to positive trade balance and thus reductions of trade deficit.

This means the problem of trade deficit is not real and is corrected automatically by markets, and thus ignored by economists in Great Britain.

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