When a nation's exports are greater than its imports,_________

Step 1: Analyze the question The question asks what we call the situation where a country's exports are greater than its imports.

Step 2: Explain the concept

• Balance of trade (BOT) = value of visible exports − value of visible imports (goods only).
• Balance of payments (BOP) is broader. It records all transactions with the rest of the world, including services, transfers, investments and capital flows.

Balance of trade has three possible states:

• Exports > Imports: favourable balance of trade (trade surplus)
• Exports < Imports: unfavourable balance of trade (trade deficit)
• Exports = Imports: balance of trade is in equilibrium (net trade is zero)

Step 3: Apply to the options

• A. Net foreign trade is zero: This would only be true if exports = imports. Wrong.
• B. Favourable balance of trade: Exports exceed imports, so this is a trade surplus. Correct.
• C. Favourable balance of payment: The BOP also includes capital and financial flows, so exports exceeding imports does not guarantee a BOP surplus. The question speaks only of exports and imports, so this is not the best answer.
• D. Unfavourable balance of trade: This is the opposite situation. Wrong.

Step 4: Answer A favourable balance of trade exists.**

Exam tip: Match the keywords. "Exports vs. imports" only points to balance of trade. Choose balance of payments only when the question mentions services, capital flows, transfers or overall international transactions. Remember: X > M = Favourable (surplus), M > X = Unfavourable (deficit).