Question

what is the impact of trade surplus (exporting more than importing) and trade deficit (importing more than exporting) on GDP, employment, and the exchange rate of the country's currency?

Answer 1

What is the impact of trade surplus (exporting more than importing) and trade deficit (importing more than exporting) on GDP,employment and the exchange rate of the country's currency?

Impact of trade surplus on GDP

When the total value of goods and services which a country exports exceeds  the total value of goods and services which a country imports,there is a trade surplus.It is a positive measurement of the country's balance of trade.The GDP increases when there is a trade surplus.

Impact of trade deficit on GDP

When the total value of goods and services which a country imports exceeds the total value of goods and services which a country exports,there is a trade deficit.Trade deficit reflects a negative measurement of the country's balance of payment.The GDP decreases when there is a trade deficit.

Impact of trade surplus on Employment

When there is a trade surplus,exports exceed imports.There is a increase in demand for a country's goods in the international market.To meet this excess demand there is increased production,in order to meet the demand for increased production there is increase in employment opportunities.As a result trade surplus increases employment.

Impact of trade deficit on Employment

When there is a trade deficit,imports exceeds exports.There is a decrease in the demand for a country's goods in the international market.This reduction in demand leads to reduction in the number of jobs available.As a result a trade deficit reduces employment.

Impact of trade surplus on the exchange rate of the country's currency

The demand for a country's goods in the international market,leads to an increase in the price of the goods and also strengthens the currency's value.The country has more control of its own currency and hence reduces the risk of another country selling off its currency.There is an inflow of the foreign currency in the domestic market.

Impact of trade deficit on the exchange rate of the country's currency

When exports exceed imports,there is a decrease in the demand of products of a country in the international market,this also leads to a decrease in value of the currency.The country has no control over its currency and as the imports are exceeding exports there is a outflow of domestic currency in the foreign market.As a result the value of currency decreases.

IMPACT ON	TRADE SURPLUS	TRADE DEFICIT
GDP	INCREASES	DECREASES
EMPLOYMENT	INCREASES	DECREASES
VALUE OF CURRENCY	INCREASES	DECREASES