Net exports is a negative number when:
a. a nation’s imports of goods and services are greater than its exports.
b. a nation’s imports of goods and services fall.
c. a nation’s imports of goods and services rise.
d. a nation’s exports of goods and services are greater than its imports.
The correct answer and explanation is :
The correct answer is:
a. a nation’s imports of goods and services are greater than its exports.
Explanation:
Net exports are calculated by subtracting a nation’s imports from its exports, expressed as:
[
\text{Net Exports} = \text{Exports} – \text{Imports}
]
- When net exports are negative, it indicates that the nation is importing more goods and services than it is exporting. This is known as a trade deficit. In other words, the country is spending more on foreign goods and services than it is earning from selling goods and services abroad.
For instance, if a country exports $500 billion worth of goods and services but imports $600 billion, net exports would be:
[
\text{Net Exports} = 500 – 600 = -100 \text{ billion}
]
A negative net export number indicates that the country is a net importer.
How Net Exports are Affected:
- Option a: “A nation’s imports of goods and services are greater than its exports” directly leads to negative net exports, as imports exceed exports. This is the definition of a trade deficit.
- Option b: “A nation’s imports of goods and services fall” would decrease the amount subtracted from exports, possibly leading to a trade surplus (if exports remain the same and imports decrease significantly).
- Option c: “A nation’s imports of goods and services rise” would increase the amount subtracted from exports, which could worsen a trade deficit or reduce a surplus. However, it doesn’t guarantee that net exports will be negative unless imports surpass exports.
- Option d: “A nation’s exports of goods and services are greater than its imports” results in positive net exports and is referred to as a trade surplus, not a negative number.
In summary, negative net exports occur when imports exceed exports, as described in option a. This situation suggests that a country is relying more on foreign goods and services than it is earning from its own exports.