Recall the Application about the factors which allow the United States to continue to run large current account trade deficits with the rest of the world to answer the following question(s). The 2006 Economic Report of the President addressed the issue of whether the United States can continue to run large current account deficits. The report stated that the current account deficits would eventually be reduced and highlighted a number of factors that suggested the deficits could continue for a long period of time.
-According to this Application, in order for the United States to continue to run large current account deficits

Question

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The application states that in order for the United States to continue to run current account deficits, other countries need to purchase U.S. assets. This will bring in foreign capital and allow the U.S. to continue importing more than it exports, ultimately leading to a current account deficit. A is incorrect because purchasing foreign assets would decrease the current account deficit. C is incorrect because if other countries sell U.S. assets, this would also decrease the current account deficit. D is incorrect because while increasing the U.S. saving rate could lead to reduced imports and an improved trade balance, it is not necessary for the U.S. to continue running a current account deficit.

Recall the Application About the Factors Which Allow the United