<P> If a country exports a greater value than it imports, it is called a trade surplus, positive balance, or a "favourable balance", and conversely, if a country imports a greater value than it exports, it is called a trade deficit, negative balance, "unfavorable balance", or, informally, a "trade gap". </P> <P> The balance of trade forms part of the current account, which includes other transactions such as income from the net international investment position as well as international aid . If the current account is in surplus, the country's net international asset position increases correspondingly . Equally, a deficit decreases the net international asset position . </P> <P> The trade balance is identical to the difference between a country's output and its domestic demand (the difference between what goods a country produces and how many goods it buys from abroad; this does not include money re-spent on foreign stock, nor does it factor in the concept of importing goods to produce for the domestic market). </P> <P> Measuring the balance of trade can be problematic because of problems with recording and collecting data . As an illustration of this problem, when official data for all the world's countries are added up, exports exceed imports by almost 1%; it appears the world is running a positive balance of trade with itself . This cannot be true, because all transactions involve an equal credit or debit in the account of each nation . The discrepancy is widely believed to be explained by transactions intended to launder money or evade taxes, smuggling and other visibility problems . Especially for developing countries, the transaction statistics are likely to be inaccurate . </P>

How does terms of trade affect balance of payments