Principles of Macroeconomics / Unit 7 MAC 0617 worked example, 60 to 90 seconds
Reading a Trade Statistic
The idea
Before drawing a conclusion from a trade figure, ask four things. Is it goods alone or the full current account, since the two can differ substantially? Is it measured in money or as a share of output, since a deficit that doubles while the economy triples has shrunk? Does it describe the level of trade or the balance, which are independent? And which way was the economy moving, since a boom widens a deficit and a recession narrows one without anything structural changing.
In practice
Worked example: a headline reports that a country's trade deficit hit a record in dollars. Measured against output it may be smaller than a decade ago. It may be the goods figure, with a services surplus left out. And it may have widened because the economy grew faster than its trading partners, which is the deficit of a boom rather than of decline.
Where people slip
None of these questions is about whether trade is good or bad. They are about whether the number means what the sentence around it claims, which is the same discipline units three and six applied to output and prices.
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