The effect of nation running a
Answer to Problem 1QQ
Option ‘a’ is the correct answer.
Explanation of Solution
Option (a):
When a nation runs a trade deficit, it experiences a capital inflow. The lower savings or increasing investment lead to trade deficits and this implies domestic investment exceeds the savings by resulting in a capital inflow. Thus, option (a) is correct.
Option (b):
The lower savings or increasing investment leads to trade deficits. This implies the domestic investment exceeds the savings and not the reverse. Thus option (b) is incorrect.
Option (c):
Trade deficit implies the increasing investment and lower savings. This implies a decreasing output. Because trade deficit means the nation is not producing enough goods for its residents. Thus, option (c) is incorrect.
Option (d):
The lower savings or increasing investment lead to trade deficits, this implies domestic investment exceeds the savings by resulting in a capital inflow. Trade deficits result in a reduction in the capital outflow as well as the output. Thus, option (d) is incorrect.
Trade deficit: Trade deficit is the situation where the country imports goods and services more than what they export. It is the situation of the negative trade balance which means that the outflow of capital as payments to the imports is higher than the inflow of capital as revenue for the exports.
Trade surplus: Trade surplus is take place when the value of a country's exports is greater than the value of its imports.
Capital outflow: The capital outflow occurs when the country purchases the foreign goods, services, and assets.
Capital inflow: The capital inflow occurs when the foreign country purchases the domestic goods, services, and assets.
Want to see more full solutions like this?
- Explain the challenge of a trade deficit on an economyarrow_forwardIs trade deficit is a national problem for US yes or not?arrow_forwardA positive balance of trade is when: A. imports are greater than exports B. exports are greater than imports C. exports equal imports D. All of the Abovearrow_forward
- Why does a recession cause a trade deficit to increase?arrow_forwardAn economy can run a trade deficit (have negative exports) permanently if: a. The Current and Financial account generate a net outflow of money, and the external debt does not increase as percentage of GDP. b. The level of GDP of the country is sufficiently low. c. Migration of the national labour force to overseas is allowed. d. The Current and Financial account bring enough net inflow of money, and the external debt does not increase as percentage of GDP.arrow_forwardOnly one of the following statements about the trade surplus is correct. Which one is it? a. the government should always strive for a trade surplus and a healthy inflow of foreign capital b. the government generating a trade surplus is better than increasing foreign capital inflows c. increasing foreign capital investment is better than generating a trade surplus d. generating a trade surplus and an overall net inflow of capital is impossiblearrow_forward
- From the point of view of the domestic standard of living, a country should a. welcome cheap imports b. try to expand exports c. impose tariffs to keep out foreign competition d. try to be self-sufficient.arrow_forwardTurkey has run a trade deficit for almost every year during the past few decades. Which of the following is the main factor leading to this situation? a.The Turkish lira is overvalued against foreign currencies. b.International demand for Turkish goods and services is low. c.Domestic demand for foreign goods and services is high. d.National saving in Turkey is low relative to domestic investment.arrow_forwardShould we focus our efforts on foreign investment or domestic investment ?arrow_forward
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education