d) Significance of global trade imbalances

• What is the relationship between global exports and global imports in trade?

  The value of global exports equals global imports.
• What does a current account surplus in one country imply for another country?

  If one country has a current account surplus, another country must have a deficit.
• Why can persistent deficits be problematic for a country?

  Persistent deficits require financing from abroad to fund continued imports.
• What might happen to a country that is running persistent deficits?

  The country may gradually sell its assets to finance imports.
• What vulnerabilities arise from owing money to a foreign entity?

  Owing money to a foreign entity creates financial vulnerabilities.
• How did the 2008 Global Financial Crisis affect countries with significant debts?

  Creditors demanded quick repayment, leading to economic problems.
• Which country owed significant sums to creditors during the 2008 Global Financial Crisis?

  Greece
• What issue arises from persistent surpluses in a country?

  Persistent surpluses focus resource allocation on foreign demand rather than domestic demand.
• How can persistent surpluses affect the local economy?

  They can limit the availability of goods/services, decreasing the standard of living.
• What instability can persistent surpluses create in the foreign exchange market?

  It can create instability if a floating exchange rate mechanism is in operation.
• How did China manage its currency in relation to its trade surplus?

  China did not allow its currency to float freely despite running a surplus.
• What shift has China made in recent years regarding its economic focus?

  China has shifted its focus to increasing domestic demand.
• What has resulted from China's trade surplus in terms of foreign investment?

  China's surplus has led to significant foreign direct investment by Chinese firms.
• What is the level of foreign asset ownership by Chinese firms?

  The level of foreign asset ownership by Chinese firms is high.