If the U.S.budget deficit increased substantially while private domestic saving and private domestic investment remained roughly the same, then

Question

Quizplus · Accepted Answer

When the U.S. budget deficit increases, it means that the government is spending more than it is receiving in revenue. If private domestic savings and investment remain the same, it implies that the overall demand in the economy has not increased, which implies that the deficit is being financed by borrowing from overseas. This increased borrowing, in turn, requires an increase in the imports. Therefore, the correct answer is A) the U.S. imported more than it exported.

If the USBudget Deficit Increased Substantially While Private Domestic Saving and Private