In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade ______ and ______ net capital outflow.
A) deficit; negative
B) surplus; negative
C) deficit; positive
D) surplus; positive

Question

Quizplus · Accepted Answer

A trade deficit occurs when imports exceed exports, and this is associated with a negative net capital outflow, as the country is borrowing from abroad to finance the excess of imports over exports.

In a Small Open Economy, If Exports Equal $5 Billion