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 EconomicsQUESTIONS & ANSWERS > Assume a U.S. firm buys (imports) $5 million (in U.S. dollars) of foreign goods. That transaction by itself increases the trade deficit by $5 million. But, the $5 million will flow back to the United States to purchase either (i) U.S. goods and services or (ii) U.S. assets. a) How does the way the $5 million comes back to the United States determine whether there will be balanced trade or a trade deficit? b) How does the U.S. economy benefit from either transaction (the foreign purchase of U.S. goods and services [exports] or the purchase of U.S. assets)?

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