Asked by Bradley Fabretti on May 06, 2024
Verified
Which is the most accurate statement?
A) We are living well beyond our means and we face an imminent financial crisis as foreigners refuse to accept U.S.dollars.
B) We cannot continue running huge current account deficits.
C) We can easily run up larger and larger current account deficits without any serious consequences.
D) Large and growing current account deficits are good for our economy.
Current Account Deficits
A situation where a country's total imports of goods, services, and transfers exceed its exports, reflecting a negative balance in international trade.
Financial Crisis
A situation in which the value of financial institutions or assets drops rapidly, leading to a loss of confidence among investors, lenders, and the public.
U.S. Dollars
The official currency of the United States, widely used as a standard of exchange in international markets and as a reserve currency globally.
- Discern the rationales and ramifications of current account deficits and trade imbalances.
Verified Answer
RB
Raven BernierMay 12, 2024
Final Answer :
B
Explanation :
Running huge current account deficits means importing more goods and services than exporting, which leads to a buildup of debt to foreign entities. Eventually, these debts will have to be paid back, and if foreigners refuse to accept dollars, it can lead to a financial crisis. Therefore, it is not sustainable to continue running current account deficits at the current level, and corrective measures must be taken to reduce them.
Learning Objectives
- Discern the rationales and ramifications of current account deficits and trade imbalances.