Which of the following will increase the United States trade deficit?

• A. A decrease in U.S. government spending
• B. A decrease in U.S. imports of foreign goods
• C. An increase in U.S. exports to other countries
• D. An increase in U.S. imports of foreign goods

Answer: (D)

Verified step by step guidance

1. Understand the concept of the trade deficit: The trade deficit occurs when a country's imports exceed its exports, meaning the country buys more goods and services from abroad than it sells to other countries.
2. Recall the formula for the trade balance: \(\text{Trade Balance} = \text{Exports} - \text{Imports}\). A negative value indicates a trade deficit.
3. Analyze how changes in imports affect the trade balance: An increase in imports raises the value of goods bought from abroad, which increases the denominator in the trade balance formula and thus tends to increase the trade deficit.
4. Analyze how changes in exports affect the trade balance: An increase in exports raises the numerator in the trade balance formula, which tends to reduce the trade deficit or increase a trade surplus.
5. Evaluate the options given: Since an increase in U.S. imports of foreign goods increases imports without a corresponding increase in exports, it will increase the trade deficit.