Question

For the entire year the nations balance of trade with other nations has been in a substantial deficit position yet as always the overall balance of payments will be in balance describe the various factors that accomplish this overall balance in spite of a deficit in the balance of trade.

Answer 1

Solution:

Balance of trade referred to the import and export that a country does with other countries. If total import is more than the total export then it is trade deficit and similarly when export is more than the import then it is said as trade surplus.

Balance of trade means trade of goods and services and it is part of Balance of payment. If a country is in trade deficit then they might have capital surplus and hence overall balanced.

Balance of payment has 3 components

1. Current account (Trade )

2. Capital account

3. Errors and omission

So if a country has current account deficit then it must be balanced by capital account and errors and omissions to make the Balance of payment balanced.