Why is it detrimental for a nation to have negative balance of payments?
A negative balance of payments is detrimental for a nation because it means the country spends more on buying goods than it can earn by selling its goods to other countries.
This creates an unfavourable economic situation where the country's expenditure on imports exceeds its income from exports. Such an imbalance puts pressure on the economy and affects its financial stability.
The most serious consequence is that a negative balance would ultimately lead to exhaustion of financial reserves. As the country continues to spend beyond its earning capacity through international trade, its reserves deplete over time, weakening its economic position and reducing its ability to sustain future trade operations.
Explanation
The answer is derived directly from the textbook context which states that 'A negative balance would mean that the country spends more on buying goods than it can earn by selling its goods. This would ultimately lead to exhaustion of its financial reserves.' The context explicitly mentions that balance of trade and balance of payments have 'serious implications for a country's economy.'