Trade Balances and Deficits

Trade Imbalances

​ Most countries face a somewhat more serious economic problem in the form of an unfavorable trade balance with other countries. Such an imbalance exists when the total value of a country's exports exceeds that of its exports. For example, if a country buys $25 billion in products from other countries, yet sells only $10 billion of its own products overseas , its trade deficit is $15 billion. Many underdeveloped nations find themselves in this position because they lack natural resources, and thus have to import raw materials, refined, manufactured or processed good.

​ One effect of a trade deficit is the flow of currency out of a country. In the case of an underdeveloped nation, this can cause many financial difficulties, including to meet foreign debt payments or obstacles to the creation of key industries. Even in the case of a fully developed nation, such as the United States, a large trade deficit would be a reason for alarm. American products made by well- paid workers in the United States , cost more to produce than those made in other countries where living costs are lower and university educations are state sponsored. In those countries labor and materials cost investors less. Thus, money spent on foreign products not made in America does not generally contribute as much to American GDP unless US state and federal governments charge import taxes.

Multiple Choice

It can be inferred from the reading passage that many American industries:

• Pay American workers insufficient wages.

• May prefer to import cheaper labor and materials from overseas.

• Lack most primary resources they need in America.

Multiple Choice

What does this passage mainly discuss?

• The fact that imports are more important than exports.

• The cause and consequence of trade deficits.

• Several global trade problems.

• The lack of primary resources in underdeveloped countries.

Multiple Choice

How does a trade imbalance occur?

• A country has corrupt leaders that steal money.

• A country sells more products overseas than it imports,

• The value of the products a country imports is greater than the value of its exports.

• A country lacks the technology to develop natural resources.

Multiple Choice

Which words below is the best synonym for the word " deficit " in the passage?

• Products

• Situation

• Shortage

• Gain

Multiple Choice

According to the article, why do many underdeveloped countries have trade deficits?

• They have failed to meet foreign debt payments and loans.

• They have to import all of their natural resources.

• They overspend on social welfare programs.

• They have too import far to many resources, products or services.

Multiple Choice

Which paragraph topic might best PRECEDE ( come before ) the first paragraph in this reading?

• Serious global military wars and their effects.

• The reasons why some countries have healthy trade balances.

• A detailed explanation of different types of global products.

Multiple Choice

" American products, made by well paid workers in the United States, cost more to produce than those made in places where labor and primary resources are cheaper. " What does the word those refer to in this sentence?

• products

• industries

• workers

• trade deficits

Multiple Choice

Which is NOT mentioned as a possible cause of trade imbalance in a developed country like America?

• Low labor and material costs abroad.

• High costs to export American products.

• A lack of natural resources.