A country purchases $3 billion of foreign-produced goods and services and sells $2 billion of domestically produced goods and services to foreign countries. It has exports of

Question

a. $3 billion and a trade deficit of $1 billion.
b. $3 billion and a trade surplus of $1 billion.
c. $2 billion and a trade deficit of $1 billion.
d. $2 billion and a trade surplus of $1 billion.

Answer 1

To analyze the situation, we can summarize the key details:

• Imports (foreign goods and services purchased by the country): $3 billion
• Exports (domestic goods and services sold to foreign countries): $2 billion

Now, we can calculate the trade balance, which is determined by the formula:

Trade Balance = Exports - Imports

Substituting the values:

Trade Balance = $2 billion (Exports) - $3 billion (Imports) Trade Balance = -$1 billion

A negative trade balance indicates a trade deficit.

Thus, the country has:

• Exports of $2 billion
• A trade deficit of $1 billion

The correct answer is:

c. $2 billion and a trade deficit of $1 billion.