Trade deficit refers to the situation where 

The correct answer is export of goods is less than import of goods 

Key Points

• Trade deficit is a term used to describe a situation where the value of a country’s export of goods is less than import of goods during a given period.
• It is also referred to as a negative balance of trade (BOT).
• The balance can be calculated on different categories of transactions: goods, services, goods and services.
• Trade deficits can have advantages and disadvantages depending on impacts on production, jobs, national security, and how they are financed.

The Impact of Trade Deficit

• Initially, a trade deficit can enhance the standard of living as it offers residents access to a wider variety of products.
• If a trade deficit continues for an extended period, the government may need to source more foreign exchange to bridge the gap, leading to the depreciation of the local currency.
• A significant trade deficit necessitates finding foreign investors to help reduce the import-export gap.
• A high trade deficit can lead to job outsourcing to foreign countries as more imports reduce job opportunities locally.
• The demand for imported goods can cause a decline in demand for local products, leading to factory closures and job losses.

Benefits of Trade Deficit

A trade deficit does come with some advantages, including:

• It allows a country to consume more than its production capacity.
• It helps nations to avoid any shortage in goods.
• Trade deficit provides countries with a comparative advantage, increasing global wealth.
• It can lead to increased foreign direct investment.