In national income accounting, net exports become negative when which relationship between exports and imports holds true?

Introduction / Context:
Net exports are an important component in the calculation of a country's gross domestic product. In the expenditure approach, GDP is measured as consumption plus investment plus government spending plus net exports. Net exports are defined as exports minus imports. Understanding how the sign and magnitude of net exports change with different trade patterns is essential for interpreting macroeconomic data and trade balances. This question asks you to identify the condition under which net exports become negative, indicating a trade deficit rather than a trade surplus.

Given Data / Assumptions:

• Net exports are defined as exports minus imports, often written as NX = X - M.
• Exports refer to goods and services sold to foreigners.
• Imports refer to goods and services purchased from abroad.
• A negative value of net exports indicates a trade deficit.

Concept / Approach:
The conceptual starting point is the simple formula NX = X - M. If exports are larger than imports, the result is positive, leading to a trade surplus. If exports equal imports, net exports are zero and trade is balanced. If imports are larger than exports, the result of exports minus imports becomes negative, indicating that the economy is buying more from the rest of the world than it sells. The question specifically asks for the condition under which net exports are negative, so we must choose the statement that matches the case in which imports exceed exports in value.

Step-by-Step Solution:
Step 1: Write the definition of net exports as NX = exports minus imports. Step 2: Recall the basic rule that if a larger number is subtracted by a smaller one, the result is positive. Step 3: Recall the complementary rule that if a smaller number is subtracted by a larger one, the result is negative. Step 4: Apply this to the expression exports minus imports. Step 5: For NX to be negative, imports must be greater in value than exports. Step 6: Therefore net exports are negative when imports of goods and services exceed exports of goods and services.

Verification / Alternative check:
Consider a numerical example for verification. Suppose exports are 100 units and imports are 80 units. Then net exports equal 100 minus 80, which is plus 20, a positive value. Now suppose exports are 80 units and imports are 100 units. Net exports equal 80 minus 100, which is minus 20, a negative value. In this second case, imports are greater than exports, and net exports are negative. This matches the intuitive idea of a trade deficit, where a country spends more on foreign goods than it earns from selling abroad. The example confirms that the correct condition for negative net exports is imports greater than exports.

Why Other Options Are Wrong:
The option that says exports are greater than imports describes a trade surplus, so net exports would be positive, not negative. The option stating that there are no exports is incomplete, because net exports depend on both exports and imports; if a country has no exports but very few imports, the net figure may not be significantly negative. The option saying exports and imports are always equal would yield net exports of zero, not a negative value. The option about exporting services but not importing goods is too vague and does not necessarily imply imports are larger than exports. Only the statement that imports are greater than exports directly implies negative net exports.

Common Pitfalls:
A frequent mistake is to confuse the absolute size of exports or imports with the sign of net exports. Some learners think any presence of imports is bad or automatically implies a negative balance, which is not true. Others forget the formula NX = X - M and rely on intuition alone. To avoid confusion, always translate verbal descriptions into the simple arithmetic expression. Compare exports and imports directly and ask whether the difference is positive, negative, or zero. This will guide you reliably in questions about trade balances and net exports.

Final Answer:
Net exports become negative, indicating a trade deficit, when imports of goods and services are greater than exports so that exports minus imports yields a negative value.