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Which of the following is true about trade deficits?

a) Trade deficits occur when S+T>I+G

b) Trade deficits occur when S+T < I +G

c) Can be caused by government budget deficits or levels of investment that exceed private savings

d) Both b and c are correct

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Darryn D'Souza
Darryn D'SouzaLv10
29 Sep 2019

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Related questions

1.US manufacturers receive news that profits from current-period investments will be taxed at a higher rate. What effect will this have on the present US current account deficit? NOTE: A decrease in the current account deficit means the current account becomes less negative.

A. The current account deficit will likely decrease (become less negative)

B. The current account deficit will likely increase (become more negative)

C. This will have no effect on the US current account deficit

D. It's impossible to tell what effect this will have on the US current account deficit

 

2.Which of the following would be consistent with the hypothesis that US productivity growth is causing trade deficits:

A. Increases in stock prices over and above current earnings

B. Increased consumption as a ratio of GDP

C. Both

D. Neither

 

3.Evaluate the following statement using the model of trade deficits we learned in class: "Our country's trade deficit means that future generations will have to pay other countries back and will have less to consume than if we ran a balanced trade account". This statement is

A False: we can renege on our debts if they become too high.

B True: trade deficits means absolutely less consumption in future periods

C False: while in the future we will have to run trade surpluses if we run a trade deficit in the current period, increased investment means our absolute future consumption may be higher.

D True: trade deficits shift the share of consumption towards the current period and therefore the absolute consumption level in the future must be lower.

 

4.If a basket of goods in Home costs PH and PF in Foreign, and E is the price of the home currency in terms of the Foreign currency, which of the following is the Purchasing Power Parity equation?

A. PH = PF * E

B. PH / E = PF

C. PH * E = PF

D. PH / PF = E

The Japanese economy has the following traits:

a. It is very large. b. It has an extremely high savings rate.

c. It has a moderately high rate of investment in physical capital.

d. It has relatively few large economies that are geographically very close to it.

e. It has a tradition of limiting imports.

Based on these traits, would you expect the level of trade of the Japanese economy to be high or low? Which traits are especially relevant in reaching this conclusion? Also based on these traits, would you expect Japan to have trade surpluses or deficits? Which traits are especially relevant in reaching this conclusion

14. The factor market can best be described as, where __________. a. Families buy goods and services. b. Firms buy goods and services. c. Firms buy the services of labor, land and capital. d. The government sells goods and services.

15.Investment in the US is financed through __________. a. Private savings, surpluses in the government budget, and borrowing from the rest of the world. b. Private savings, deficits in the government budget, and borrowing from the rest of the world. c. Private lending, deficits in the government budget, and lending to the rest of the world. d. Private savings and borrowing from the rest of the world.

16. In the Circular Flow Model, goods and services produced by business firms are sold on __________. a.. The goods market b. In the factor market c. In the labor market d. In the financial market

17. If we import more than we export from the rest of the world, we __________. a.. We must borrow an equal amount from the rest of the world. b. We can lend an equal amount to the rest of the world. c. We have a surplus. d. We are helping to finance the investment of the rest of the world.

18. The Circular Flow Model shows that the family sector earns its income __________. a. Selling factors of production. b. Buying factors of production. c. Selling goods and services. d. Selling financial assets

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