Question

If a nation exported much of its output but imported little, would it be better or worse off? How about the reverse; that is, exporting little but importing a lot?

Answer 1

● Net exports represents exports minus imports. If exports are greater than imports, the net exports is positive which means a country has a positive trade balance. It indicates the country has a trade surplus. Positive net exports contribute to economic growth, which means more output is produced from factories and industrial facilities as well as greater number of people are employed to keep the establishments running. There is greater inflow of funds into the country which stimulates consumer spending and contributes to economic growth. So, a country would be better off if it has a positive trade balance.

On the other hand, if imports exceed exports, it creates a trade deficit. Imports are considered a drag on the economy, and imports represents an outflow from a country, since they are payments made by importers to overseas entities (exporters). A rising level of imports or a growing trade deficit may have a negative effect on the level of domestic currency versus foreign currencies or the exchange rate.

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