Question

China sells more to other countries than it buys from them. So, China's exports are greater than its imports. This means that China has a _____ and a(n) _____ balance of trade.

A. trade regulation, unfavorable

B. trade deficit, favorable

C. trade surplus, favorable

Answer 1

The answer is trade surplus, favorable

Answer 2

The correct answer is C.

The Balance of Trade is one of the accounts that constitutes a country's Balance of Payments. This account registers all the transactions which involve sales or purchases of goods or services performed by the nation analyzed and a foreign party.

If the amount of imports equals the amount of exports, a balance is reached. Otherwise:

• If exports are greater than imports: there is a trade surplus in the Balance of Trade and the country will have net savings. This is the case in China.
• If exports are smaller than imports: then there is a trade deficit in the Balance of Trade and the country will need to seek for financing to cover that difference.