What economic issue can arise from too many imports relative to exports?

What economic issue can arise from too many imports relative to exports?

• A. Surplus of natural resources
• B. Deflation of the currency
• C. Distortion of the balance of trade
• D. Increased interest rates

Answer: (C)

The distortion of the balance of trade occurs when a country imports significantly more goods and services than it exports. This situation leads to a trade deficit, where the value of imports exceeds that of exports. A consistent trade deficit can indicate that a nation is relying heavily on foreign goods, which may affect domestic industries and employment levels. Furthermore, a persistent trade deficit can lead to various economic implications, such as increased borrowing from abroad to finance the deficit, which might raise concerns about a country's economic stability. In the long run, this could result in weaker currency values and may even lead to inflationary pressures as the country tries to fund its large trade deficits. While other economic consequences may often be interconnected with trade imbalances, the primary issue of having too many imports relative to exports is indeed the distortion of the balance of trade.

The distortion of the balance of trade occurs when a country imports significantly more goods and services than it exports. This situation leads to a trade deficit, where the value of imports exceeds that of exports. A consistent trade deficit can indicate that a nation is relying heavily on foreign goods, which may affect domestic industries and employment levels.

Furthermore, a persistent trade deficit can lead to various economic implications, such as increased borrowing from abroad to finance the deficit, which might raise concerns about a country's economic stability. In the long run, this could result in weaker currency values and may even lead to inflationary pressures as the country tries to fund its large trade deficits.

While other economic consequences may often be interconnected with trade imbalances, the primary issue of having too many imports relative to exports is indeed the distortion of the balance of trade.