Question

One perspective many people hold is that surpluses in the balance of trade and payments are good omens, while deficits are symptoms of a country suffering from some economic problems. Does that perspective make economic sense? Explain why or why not.

Answer 1

No, this perception doesn't make any sense in the economy, a nation having a higher import and thereby more capital inflow will use foreign finances to increase the local consumption for example USA, it always have a higher deficit and capital inflow in the market.

Exports on the other hand, is considered as capital outflow i.e. its local savings that is flowing out of the nation in way of goods and services in the market. So, in the short run its the deifict that helps increase the consumption and growth of the nation.