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

Answer - No , that perception does not makes the economic sense. The surplus in BOP means the inflow which can also be the FDI's whom we need to pay later. Whereas deficits could be result of our investment outside which will yield us returns in future. Also the deficits could be the result of large government spendings which are essential for the economy and surplus could be result of large number of blocked funds which are not at all good for economy. Hence the above statement does not have a correct economic sense.