What does a trade deficit indicate about a country's economy?

A trade deficit indicates that a country imports more than it exports. This is a crucial concept in international trade and economics, as it reflects the balance of trade between countries. When the value of a country's imports exceeds the value of its exports, it results in a trade deficit. This situation can suggest that a country is relying heavily on foreign goods and services, which might be a sign of domestic demand that exceeds local supply.

Additionally, a trade deficit can also have implications for currency exchange rates, as well as for the country's economic health in the long term. If achieved sustainably, it can stimulate domestic economic growth, but if persistent, it might raise concerns about economic dependency on foreign markets and lead to increased borrowing or pressure on the domestic currency.

The other choices present different scenarios: a trade surplus indicates the opposite of a trade deficit, where exports exceed imports; balancing trade suggests that imports and exports are equal; and no trade activity suggests complete isolation from international trade, which is not reflective of the typical patterns observed in global economies.