Question

What are the impacts of the negative balance of trade?

Answer 1

The negative balance of trade is detrimental for a nation because:

• It results in a fall in the value of the domestic currency in terms of foreign currency.
• It indicates poor production of a country.
• It increases the pressure of international loans and hence of payment of not only sum but also of international interest. It increases the say of international agencies like IMF in the functioning of the economy.
• It creates inflationary pressure in the domestic economy.