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 (NX) refer to the difference between the value of a country’s exports and the value of its imports. The formula for net exports is:
[
NX = \text{Exports} – \text{Imports}
]
When a country’s imports exceed its exports, net exports are negative. This situation is commonly referred to as a trade deficit. A trade deficit occurs when a country imports more goods and services than it exports, meaning it is spending more on foreign goods and services than it is earning from its own exports.
Here’s a more detailed look at the implications of net exports being negative:
- Economic Impact: A persistent negative net export situation often leads to borrowing from foreign lenders to finance the excess imports. This may cause a country to run up a trade deficit and can lead to an accumulation of foreign debt.
- Currency Impact: When a country has negative net exports, the demand for foreign currencies increases, which can lead to depreciation of the country’s own currency in the foreign exchange market.
- Government Policy: Governments often take steps to address a trade deficit, such as implementing tariffs, quotas, or policies that encourage domestic production and consumption of locally made goods and services.
In contrast:
- Option A refers to a situation where the economy’s stock of capital goods is declining, which impacts investment and productivity but does not directly relate to net exports.
- Option B (exports exceeding imports) leads to positive net exports, i.e., a trade surplus.
- Option C (depreciation exceeding domestic investment) refers to capital accumulation and economic growth but does not necessarily determine the net export balance.
In conclusion, when a nation’s imports exceed its exports, its net exports are negative, indicating a trade deficit.
Now, I’ll generate an image to help illustrate this concept.
Here is an illustration showing the concept of negative net exports, with imports exceeding exports, which results in a trade deficit. The image visually represents this imbalance through a balance scale, a downward arrow, and other symbols like shipping containers and factories. This should help make the concept clearer!