Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They decrease the deficit by increasing exports.
B
They have no effect on the deficit.
C
They increase the deficit by decreasing exports.
D
They balance the deficit and surplus automatically.
Understanding the Answer
Let's break down why this is correct
Answer
Net exports are the difference between what a country sells to other countries and what it buys from them. When a country has a trade deficit, it means it is importing more goods and services than it is exporting. This situation can lead to an imbalance in the balance of payments, which records all economic transactions between residents of the country and the rest of the world. For example, if a country imports $200 billion worth of goods but only exports $150 billion, it has a trade deficit of $50 billion. This deficit can affect the country's currency value and might lead to borrowing from other countries to cover the gap, impacting its overall economic stability.
Detailed Explanation
When a country has a trade deficit, it means it imports more than it exports. Other options are incorrect because This answer suggests that increasing exports will help reduce the deficit; This option claims that net exports have no effect on the deficit.
Key Concepts
net exports
deficits and surpluses
Topic
Balance of Payments Adjustments
Difficulty
medium level question
Cognitive Level
understand
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