In the short run, a trade deficit allows more consumption, but in the long run, a trade deficit is a problem because the:
A)country eventually will consume more and produce less.
B)country eventually will sell all its financial assets to foreigners.
C)domestic currency will appreciate.
D)country eventually has to produce more than it consumes in order to pay foreigners their profits.

Question

Quizplus · Accepted Answer

In the long run, a trade deficit means a country is borrowing from abroad to finance its consumption, which eventually requires it to produce more than it consumes to repay the debt and profits to foreigners.

In the Short Run, a Trade Deficit Allows More Consumption