Question

Countries with a trade deficit are

a		usually capital-importing.
b		usually capital-exporting.
c		exporting more than they are importing.
d		none of the above.

Answer 1

usually capital-exporting.

When the government reduces the import through the imposition of tariff then the supply of domestic currency in the foreign exchange market would come down. This in turn increases the domestic currency value. Increasing currency value makes imports cheaper and export costlier. Thus, the import restriction leads to reduce the level of export. Since the net capital flow is the same, there is no change in the level of trade balance.

Deficit budget and trade deficit:

If consumption level of a country increases, imports will increase. Deficit budget increases the consumption of a country. Increase in consumption causes net exports to fall and thereby a country faces trade deficit.