International Trade and Finance

International Trade and Finance

Norman Maynard

ECO/372

April 21, 2014

Daniel Puente

International Trade and Finance

Trade surplus is a condition in which a country has a positive balance of trade with other countries. Countries that enjoy a trade surplus have more money flowing in than out; including both money for the products the country exports and the money spent by international visitors to the country. When a nation has a trade surplus, it has more control over its own currency.

Exports include goods and services produced in the country and sold to one or more other countries. Country exports are of a higher value than imports. Balance of trade is the difference between the value of exports and imports within a specified period. A positive balance is a surplus, and a negative balance is a trade deficit.

A trade surplus indicates that there is more demand for the exports of the country than there is demand for foreign products and services. There is, therefore, a higher employment rate within the country and the standard of living is increased. Positive balance of trade plays an important role in the economic growth of any country.

Trade surplus in goods and services not only influences the level of employment within the country, but it also affects the price level and inflation rate in its economy. As the need for the country's goods and services increase, producers increase their output to meet the increased demand; in turn generating additional income that augments the growth of the country's economy. When the economy grows, the output, or gross domestic product, increases and citizens can afford a more expensive lifestyle.

There are drawbacks to the increase in trade surplus. A rise in net exports will force production to meet international demand by increasing demand for labor and resource goods and services. Increased demand will increase the cost of wages and raw material increasing the cost of production, leading to...