A trade deficit occurs when a country imports more goods and services than it exports, resulting in a negative balance of trade. This imbalance can lead to various advantages, such as a wider variety of products and improved living standards, but also presents disadvantages like unemployment and inflation. The formula for calculating trade deficit is total value of exports minus total value of imports.

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Trade Deficit

2. 1. Meaning
2. Formula
3. Causes
4. Effects
5. Advantages
6. Disadvantages
7. Reference
Content

3. Trade Deficit is a situation where the country is buying more from other countries and selling less to other countries. The
other name of Trade Deficit is Negative Balance of Trade (BOT).
Balance of Payment of country majorly consists of a current account, capital account, and financial account. The current
account records all tangible and intangible transactions between countries. If the current account shows a negative
balance then there is a Negative Balance of Trade in the current account. A deficit in capital account shows that there is
more capital outflow, than the inflow in the economy.
Meaning

4. The formula for calculating Trade Deficit is as follows:-
Trade Deficit ($) = Total Value of Exports ($) – Total Value of Imports ($
Formula

5. • When the domestic country is not producing enough goods and/or services within the boundaries of the country.
• When the domestic country is not producing enough goods and/or services within the boundaries of the country.
Causes

6. • A country with a Negative Balance of Trade, demands a lot of foreign exchange in order to fill the gaps between
exports and imports of the country.
• Excessive dependence on imported goods leads to less demand for domestic goods.
• Leads to various financial anomalies and adverse effect on the local economy and public at large.
Effects

7. • Variety of products
• Competitive price
• Initially improves standard of living
• Overcome the scarcity of goods and services
• Lesser risk of inflation
• Encourages FDI
Advantages

8. • Reduction in domestic production
• Unemployment
• Negative BOT reflects lower GDP
• Weakening of domestic currency
• Leads to inflation
• Government might put its assets and resources at stock by attracting FDI
Disadvantages

9. Reference
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