E.48: Trade Deficits

What occurs when a country's imports exceed its exports?

• Fiscal deficit

• Trade deficit

• Budget surplus

• Trade surplus

Which factor can lead to a trade deficit by making domestic goods less appealing compared to foreign goods?

• Strong domestic currency

• Decreased economic growth

• Competitiveness of domestic industries

• Lower consumer spending

How can exchange rates influence a trade deficit?

• A strong domestic currency makes imports cheaper

• A weak domestic currency boosts exports

• Fixed exchange rates stabilize imports

• Variable exchange rates decrease exports

What role does economic growth play in affecting trade deficits?

• Decreases borrowing from foreign investors

• Reduces imports

• Slows down consumer spending

• Increases consumer demand for imports

Which government policy can directly reduce imports?

• Increasing subsidies to domestic industries

• Lowering interest rates

• Enhancing free trade agreements

• Implementing tariffs on imports

What can finance a trade deficit?

• Decreased foreign investment

• Borrowing from domestic banks

• Borrowing from foreign investors

• Reducing government spending