Question

3. Is being in a trade deficit a bad thing, and why? What does it explain about the macroeconomy if a country is in a trade deficit?

Answer 1

Trade deficit means when a country's export are lesser then import.trade deficit means a country is buying more while its sold lesser.so basically its tell about that a country's expenditure is more then income.

Sometime it say's that a trade deficit is a sign of economic growth but its not clearly linked that trade deficit help for economic growth.

Trade deficit is a sign of bad thing because in trade deficit a country is doing import more hence we did not receive foreign currency more.We have to pay more buying goods and services.trade deficit is a bad thing because in that case there is less employment opportunity because we are producing less goods.hence there will be no job opportunity created in domestic country.It will also affect foreign investment because investor does not invest where we saw no opportunity.

In a macroeconomy it tells about that national income is reducing .Debts is increasing hence we have to pay more interest as a interest.There will be unemployment.hence it is a poor sign of economy..trade deficit is a sign of borrowing .Its a sign of higher liability.

Trade deficit is also depend of many factors.But it means a country is not using its resources at full level.