A country's budget constraint states that
A) real income in the exporting country must be equal to real income in the importing country.
B) the value of exports must be equal to the value of imports.
C) a country will engage in trade only if the value of imports exceed the value of exports.
D) unless a country engages in trade, the value of exports cannot exceed the value of goods produced.
E) a country will engage in trade only if the value of exports exceeds the value of imports.

Question

Quizplus · Accepted Answer

The budget constraint of a country states that the value of exports must be equal to the value of imports. This is because a country's spending is limited by the value of its exports, which generate income, and its imports, which represent expenditure. Any excess of exports over imports represents a surplus, while any excess of imports over exports represents a deficit. Therefore, the best choice is B, as it accurately reflects the budget constraint of a country.

A Country's Budget Constraint States That