Holding other factors constant, legislation to cut taxes in an open economy will: a. increase national saving and lead to a trade surplus. b. increase national saving and lead to a trade deficit. c. reduce national saving and lead to a trade surplus. d. reduce national saving and lead to a trade deficit.

When a nation purchases more than it exports, a trade deficit results. Although very big deficits can hurt the economy, a trade deficit is neither fundamentally fully positive nor harmful.

Some key features of trade deficit are-

When a nation purchases more than it exports, a trade deficit results.
A nation with a trade deficit, also referred to as a negative trade balance, has spent more money than it has made in its foreign trade with other nations.
The amount of imports and exports a nation makes can affect that nation's GDP, currency value, rate of inflation, and interest rates. The amount of imports and the size of the trade deficit can both hurt a nation's currency.
A trade imbalance results when domestic consumers purchase more foreign goods than domestic manufacturers sell to overseas consumers, which lowers GDP.
The trade deficit can be improved by consume less and save more.

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