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Trade Deficit in National and International Economies

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National and International Economies

1. Which sector (household, business, or international) spends the most? Which sector spends the least? Which sector spends the least? Which sector, because of volatility, has importance greater than is warranted by its size?

2. Why does the value of output always equal the income received by the resources that produced the output?

3. People sometimes argue that imports should be limited by government policy. Suppose a government quota on the quantity on imports causes net exports to rise. Using the circular flow diagram as a guide, explain why total expenditures and national output may rise after the quota is imposed. Who is likely to benefit from the quota? Who will be hurt?

4. Suppose there are three countries in the world. Country A exports $11 million worth of goods to country B and $5 million worth of goods to country C; country B exports $3 million worth of goods to country A and $6 million worth of goods to country C; and country C exports $4 million worth of goods to country A and $1 million worth of goods to country B.

a. What are the net exports of countries A, B, and C?

b. Which country is running a trade deficit? A trade surplus?

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National and International Economies are described.

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1. Which sector (household, business, or international) spends the most? Which sector spends the least? Which sector spends the least? Which sector, because of volatility, has importance greater than is warranted by its size?

I will answer this question assuming we are talking about the US economy. In the US economy the HOUSEHOLD sector spends the most, about 65-70% of our GDP. The smallest contributor is REST OF THE WORLD. Our net exports amounts to less than 5% of our GDP and our total trade amounts to about 25% of our GDP which is very small by world standards. In case of many economies total trade exceeds their GDP. The sector that carries greater weight than warranted by its size is FIRMS. Investment fluctuations are the primary cause of business cycles. For example in the current business cycle investment in the US has fallen by more than 25% from its 2007 levels. For the data see ...

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