Practice Quiz

CLEP Principles of Macroeconomics Exam Prep

Category - Macroeconomics

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A small Latin American country has been running a trade deficit for the past few years. A trade deficit occurs when:
  1. A government exports more than it imports
  2. A government imports more than it exports
  3. A government imports raw goods only
  4. A government exports manufactured goods only
Explanation
Answer - B - A trade deficit occurs when a government imports more than it exports.

Key Takeaway: Trade among countries often leads to greater competition, responds to differences in demands, and decreases costs. Trade deficits occur when governments import more goods (raw and manufactured) and services than they export. In the face of trade deficits, governments become indebted to foreign countries.
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