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How does a trade deficit affect a nation's economy in the short run?

Posted on January 17, 2015 at 11:15 AM

A trade deficit occurs when a nation’s imports are greater than its exports. Net exports are negative and the current account is showing a deficit. When a trade deficit increases in the short run, aggregate demand shifts to the left. The price level decreases, real GDP falls, and unemployment rises.

If a nation’s exports are greater than its imports, it has a trade surplus or current account surplus. When net exports increase, aggregate demand will increase.

In the long run, exports and imports will balance out.

AP Macroeconomics Unit 6 International Trade

Categories: AP Macroeconomics, Macro Unit 6 International Trade

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