Explain the effect of trade deficits on economic growth
What will be an ideal response?
The foreign sector can affect capital deepening. An economy can run a trade deficit and import investment goods to aid capital deepening. Even though it borrows from abroad, the resulting increase in GDP and wealth will enable it to repay those borrowings. However, an economy can also run a trade deficit because it wants to buy more consumer goods. In this case the economy is borrowing from abroad but there would be no capital deepening, just additional consumer spending. As a result there would be no increase in GDP and when it comes time to repay the borrowing, society will be poorer.
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The single most significant service item in the welfare package is
a. Medicaid b. defense c. AFDC d. food stamps e. natural resource conservation
If the percentage change in quantity demanded of a good is smaller than the percentage change in price, consumers are very price sensitive to the price change of the good
a. True b. False Indicate whether the statement is true or false
The Scarcity Principle applies to:
A. only market decisions, e.g., buying a car. B. all decisions. C. only non-market decisions, e.g., watching a sunset. D. only the poor.
If a major technological breakthrough occurs, then the:
A. investment demand curve will shift downward. B. investment demand curve will shift upward. C. consumption function will shift downward. D. consumption function will shift upward.