Question

A country has been having trade balance deficits for 45 years. Four decades ago, the country was a net creditor, but after so many trade deficits it became a debtor. Clearly, this economy will have to run trade surpluses at some point. ------Is this true or false, and why?

Answer 1

False in my opinion

As the country has been in trade balance deficits for 45 years and it is a debtor. So it will be difficult fir the country to change to having surplus balances. Also now days state roles has changed

To be at surplus, countries had to

1 reduce spending and 2 increase taxes by heavy amounts which all can create deflationary situation.

But it can improve its situation by the following methods of debt redemption

1 refunding - Refunding the debts by issuing new bonds and securities to pay old debts On their maturity.

2 sinking funds - fund to deposit funds year by year so that when debt maturity has come then it can be used

3: terminal annuities - clear off a part of the public debt every year by issuing terminable annuities to the bond-holders which mature annually

4 additional taxation

5 special capital levy - tax on property and wealth

6 surplus balance of payment