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What is mercantilism theory?

Mercantilism is an economic theory that focuses on the trading of goods as a means to create wealth. In order for a nation to create more wealth, it needs to export more goods than it imports — it needs to sell more than it buys. If it can achieve that, it creates a positive trade balance for the nation.

Why did mercantilism occur?

Monetarism offers a third explanation for mercantilism. European trade exported bullion to pay for goods from Asia, thus reducing the money supply and putting downward pressure on prices and economic activity.