When are net exports negative?

• A. When a country does not engage in international trade
• B. When exports and imports are equal
• C. When the value of exports exceeds the value of imports
• D. When the value of imports exceeds the value of exports

Answer: (D)

Verified step by step guidance

1. Understand the definition of net exports (NX), which is calculated as the value of exports (X) minus the value of imports (M): \[ NX = X - M \]
2. Recognize that net exports measure the difference between what a country sells to other countries (exports) and what it buys from other countries (imports).
3. Analyze the condition when net exports are negative: this happens when the value of imports is greater than the value of exports, i.e., when \[ M > X \].
4. Substitute this inequality into the net exports formula: since \[ NX = X - M \], if \[ M > X \], then \[ NX < 0 \], meaning net exports are negative.
5. Conclude that net exports are negative when a country imports more goods and services than it exports, indicating a trade deficit.