Question

multiple choice 2 points

which of the following statements is false?

when the value of a countrys imports is greater than the value of its exports, the countrys net exports will be a positive value.
a country is running a trade surplus when the value of its exports is greater than the value of its imports.
net exports are sometimes referred to as the balance of trade.
a country is running a trade deficit when the value of its imports is greater than the value of its exports.

Explanation:

Define net exports and trade balance

Net exports (\(NX\)) are defined as the value of a country's exports (\(X\)) minus the value of its imports (\(M\)):

$$NX = X - M$$

The term "balance of trade" is commonly used interchangeably with net exports.

Evaluate the given statements

• Statement 1: "When the value of a country's imports is greater than the value of its exports, the country's net exports will be a positive value."

If \(M > X\), then \(NX = X - M < 0\). Thus, net exports are negative, making this statement false.

• Statement 2: "A country is running a trade surplus when the value of its exports is greater than the value of its imports."

If \(X > M\), the country has a trade surplus. This statement is true.

• Statement 3: "Net exports are sometimes referred to as the balance of trade."

This is a standard definition in macroeconomics. This statement is true.

• Statement 4: "A country is running a trade deficit when the value of its imports is greater than the value of its exports."

If \(M > X\), the country has a trade deficit. This statement is true.

Identify the false statement

The first statement is false because net exports are negative when imports exceed exports.

Answer:

• (A) When the value of a country's imports is greater than the value of its exports, the country's net exports will be a positive value. (Correct answer)
• (B) A country is running a trade surplus when the value of its exports is greater than the value of its imports.
• (C) Net exports are sometimes referred to as the balance of trade.
• (D) A country is running a trade deficit when the value of its imports is greater than the value of its exports.