This session dispels the popular notion that trade deficits are "bad" and trade surpluses are "good". The material highlights the intertemporal borrowing and lending associated with trade imbalances and notes situations in which each of these could be appropriate (or inappropriate) for nations. Key factors needed to determine the seriousness of a trade imbalance are discussed and a case study for the US is presented.

Click HERE for answers to the textbook questions.