When does a trade deficit occur?

• A. When a country does not engage in international trade
• B. When a country's imports exceed its exports
• C. When a country's exports exceed its imports
• D. When a country exports and imports are equal

Answer: (B)

Verified step by step guidance

1. Understand the concept of a trade deficit: it occurs when a country imports more goods and services than it exports.
2. Recall the definitions: Exports are goods and services sold to other countries, while imports are goods and services purchased from other countries.
3. Compare the values of exports and imports: if imports > exports, the country is spending more on foreign goods than it earns from selling its own goods abroad.
4. Recognize that this imbalance (imports exceeding exports) leads to a trade deficit, meaning the country is running a negative balance in its trade account.
5. Conclude that a trade deficit does not occur when a country does not trade or when exports exceed imports; it specifically happens when imports exceed exports.