The trade deficit is the mirror image of the required capital inflows. So why worry about these capital inflows?
A. Trade deficits automatically cause larger budget deficits.
B. Before long, the Germans, Japanese, and other foreigners will own the United States and will be dictating policy to the U.S. government.
C. These capital inflows create debts on which interest and principal payments will have to be made in the future.
D. During the period of trade deficits, personal consumption must be reduced to build up wealth to repay the debt created.
Answer: C
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What will be an ideal response?