|Posted on April 14, 2014 at 7:00 PM|
A trade deficit occurs when a country's imports (M) are greater than its exports (X) in the short run. Net exports (Xn) are negative. Imports and exports are current account transactions. A trade deficit often contributes to a current account deficit (of capital account surplus).
In the long run, a nation's imports (a leakage) will equal its exports (an injection).
AP Macroeconomics Unit 6 International Trade