Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A trade surplus contributes positively to the balance of payments.
B
A trade deficit has no effect on the balance of payments.
C
The balance of payments only considers capital flows, ignoring trade balance.
D
A trade surplus negatively impacts the balance of payments.
Understanding the Answer
Let's break down why this is correct
Answer
The trade balance is a part of the broader balance of payments, which records all economic transactions between a country and the rest of the world. The trade balance specifically looks at the difference between the value of goods and services a country exports and those it imports. If a country exports more than it imports, it has a trade surplus, while if it imports more, it has a trade deficit. This trade balance affects the overall balance of payments, which includes other factors like investments and financial transfers. For example, if a country exports cars worth $10 billion and imports electronics worth $8 billion, it has a trade surplus of $2 billion, positively contributing to its balance of payments.
Detailed Explanation
When a country sells more than it buys from others, it has a trade surplus. Other options are incorrect because Some might think a trade deficit doesn't matter; This option suggests that trade doesn't matter for balance of payments.
Key Concepts
trade balance
balance of payments
Topic
Current Account and Trade Balance
Difficulty
medium level question
Cognitive Level
understand
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