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Introducing Concepts - Trade Deficit and Surplus quiz

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  • What is the main difference between an open economy and a closed economy?
    An open economy trades goods and services with other countries, while a closed economy does not participate in international trade.
  • What are exports in the context of international trade?
    Exports are goods and services sold by a country to other countries.
  • What are imports in the context of international trade?
    Imports are goods and services bought by a country from other countries.
  • When does a country experience a trade surplus?
    A trade surplus occurs when a country's exports are greater than its imports.
  • When does a country experience a trade deficit?
    A trade deficit happens when a country's imports exceed its exports.
  • Which country is mentioned as consistently running a trade deficit?
    The USA is mentioned as consistently running a trade deficit.
  • Which countries are cited as examples of trade surpluses?
    Germany, China, and Saudi Arabia are cited as examples of countries with trade surpluses.
  • Is a trade deficit always bad and a trade surplus always good?
    No, trade deficits are not inherently bad and trade surpluses are not inherently good; their impact depends on various economic factors.
  • What principle drives international trade between countries?
    International trade is driven by the principle of comparative advantage.
  • What does comparative advantage mean?
    Comparative advantage means producing goods at a lower opportunity cost than other countries and trading for other goods.
  • What influences the balance of trade in a country?
    The balance of trade is influenced by national levels of saving and investment.
  • What does savings imply in an economic context?
    Savings imply that current consumption is less than current output, allowing for potential future investment.
  • How is economic investment different from financial investment?
    Economic investment involves allocating resources to increase future output, such as building factories, while financial investment refers to assets like stocks and bonds.
  • What is the effect of investment on future output?
    Investment increases future output by devoting current resources to activities like building factories or developing new technologies.
  • Why should trade deficits and surpluses be considered in a broader economic context?
    Because their significance depends on factors like savings, investments, and comparative advantage, not just the trade balance itself.