Export surplus (trade balance): Identify the most appropriate macroeconomic cause. Full question: Which of the following is the most appropriate cause of an exports surplus, i.e., when a country's exports exceed its imports? Choose the correct option.
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ARecessionary conditions at home that depress imports and free domestic output for export
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BSharp appreciation of the domestic currency against trading partners
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CAcross-the-board increase in import subsidies
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DSteep rise in domestic inflation relative to the rest of the world
Answer
Correct Answer: Recessionary conditions at home that depress imports and free domestic output for export
Explanation
Given data
- Target: Find the macro condition most consistent with an export surplus (exports > imports).
Concept / Approach Trade balance TB = X − M. An export surplus (TB > 0) can arise from higher foreign demand for X, lower domestic demand for M, or relative price changes that favor X and restrain M.
Option analysis Recession at home: Household and firm demand falls, so imports (M) decline. Domestic producers redirect unsold output abroad, pushing X up. Both forces raise X − M ⇒ export surplus. Currency appreciation: Makes exports costlier and imports cheaper ⇒ tends to reduce X − M. Import subsidies: Cheaper imports ⇒ M rises ⇒ reduces X − M. Higher domestic inflation: Hurts price competitiveness of exports and encourages imports ⇒ lowers X − M.
Final Answer Recessionary conditions at home that depress imports and free domestic output for export.