Net exports are negative when:
A.the economy’s stock of capital goods is declining.
B.a nation’s exports exceed its imports.
C.depreciation exceeds domestic investment.
D.a nation’s imports exceed its exports
The Correct Answer and Explanation is :
The correct answer is D. a nation’s imports exceed its exports.
Explanation:
Net exports are the difference between a nation’s exports and imports, often referred to as the trade balance. When net exports are negative, it means that the country is importing more goods and services than it is exporting, which results in a trade deficit. This situation occurs when the value of imports is higher than the value of exports, and it reflects an imbalance in the international trade of goods and services.
Key Concepts:
- Exports are goods and services produced within a country and sold to foreign markets.
- Imports are goods and services that are produced in foreign countries and purchased by residents of the country.
- Net exports (NX) = Exports (X) − Imports (M).
If Exports (X) < Imports (M), then Net Exports (NX) will be negative, meaning that the country is running a trade deficit.
A trade deficit can occur due to various reasons, including:
- Domestic Consumption Patterns: If domestic consumers demand more foreign products than what is being produced domestically, imports will rise.
- Currency Value: A strong domestic currency makes imports cheaper, potentially leading to higher imports relative to exports.
- Economic Factors: Countries experiencing strong economic growth might import more as their consumers and businesses demand more goods and services. Conversely, countries with slower growth may import less.
Other Options:
- A. The economy’s stock of capital goods is declining: This option relates to depreciation in capital goods, not directly linked to net exports.
- B. A nation’s exports exceed its imports: This describes a situation of positive net exports (trade surplus), not a deficit.
- C. Depreciation exceeds domestic investment: This pertains to the economic condition of capital formation and is not directly related to the trade balance.
Thus, a nation experiences negative net exports when its imports surpass its exports.
I’ll generate an image to represent the concept of net exports and trade balance now.
Here is an infographic illustrating the concept of net exports. It shows the imbalance when imports exceed exports, resulting in negative net exports, or a trade deficit.