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trade deficit

In economics a trade deficit is when one country imports more goods and services than it exports. A country can have a trade deficit with another country, or the rest of the world as a whole - which is also known as a current account deficit?.

As with an individual household, spending more than you make is only possible if either:
a) someone loans you money
b) you sell some asset or property.

Accordingly, nations with overall trade deficits are doing one of the following:
  • increasing their foreign debt?
  • spending their foreign exchange reserve?
  • receiving foreign investment

In a system of floating exchange rates, trade deficits are ultimately corrected by exchange rate fluctuation?s.

see also: balance of payments?, balance of trade?, currency market



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