In an open economy:
A) a trade deficit is always good.
B) a trade deficit is always bad.
C) a trade deficit may be good or bad.
D) a trade surplus is always bad.

Question

Quizplus · Accepted Answer

In an open economy, a trade deficit may be good or bad depending on the circumstances. A trade deficit can be good if it is due to strong domestic demand that is fueling imports in order to meet that demand, which can lead to increased economic growth. However, a trade deficit can also be bad if it is the result of a lack of competitiveness in domestic industries, which can lead to job losses and long-term economic decline. A trade surplus is not always bad, as it can reflect strong competitiveness in domestic industries and an ability to export goods and services to other countries.

In an Open Economy