Can someone please explain the trade deficit to me? how is it paid and who actually owes it? is it a real #?
You incur a trade deficit when your IMPORTS are more than your EXPORTS that's all. The balance of trade goes in to the computation of your GDP.
Nobody has to pay this and yes it is a real number.
A nation experiencing a trade deficit, willl try to compensate thru investments overseas, or by sending labor outside their nation to improve the bottom line figure of the GDP.
Strictly limiting my answer to trade deficit, what a nation can do to erase the deficit is to improve its export by: Giving incentives to exporters in sectors that have dismal performance or limit the importation of consumer products and limit it to raw or semi processed materials.
hope this helped
The trade deficit is the value of imports less the value of exports. If we import more than we export, we have a trade deficit. But this is only part of the picture.
The more comprehensive balance of payments also includes investment and capital flows which may offset the trade deficit.
If a country has a flexible or market determined exchange rate system, there can never be a deficit in the overall balance of payments. The exchange rate adjusts to keep the supply and demand for foreign currency always equal. Only if the government is trying to fix the exchange rate at an artificial level can a country have a balance of payments deficit or surplus.
The trade deficit occurs when the total value of imports exceeds the total value of exports (meaning we take more then we give). Thats just the basic definition though.
trade deficit is a concept referring to the balance of payments accounts. what the balance of payments accounts is, is a record of all transactions between countries. you have your visible account which consists of trade in goods, money and credit, your invisible account which is trade in services, interest rates and money transfres, your long term capital account which is all the foreign investment in a country and your short term capital account balance which is all foreign bank deposits and loans. what a trade deficit is is when these accounts summed up together give you a negative figure. it is of course a real number and when there is a trade deficit the country adds it as an outflow of money in next years balance of payments account so as to repay it. there is a very good explanation and diagram in the following link:
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