Question

True or False: Japan generally runs a significant trade surplus because of low Japanese demand for foreign goods.

Answer 1

Answer:

False

Explanation:

Among the various reasons, Japan is a high country saving rate relative to investment that cause a significant trade surplus. A higher saving rate generally corresponds to trade surplus. Japan socio-political and economical conditions reveals that people have a high propensity to save. Many reason like high life expectancy rate, underdeveloped social security and tax incentives for income from capital and frequent environmental hazards attributed to the high rate of saving in Japan.

With the high rate of savings relative to domestic investment, Japan invest more funds in other countries(net capital outflow increases). This is matched with high net exports leading to a trade surplus.