(I) The U.S. trade deficit is a financial obligation of the federal government, and if it is not paid off, foreigners will be reluctant to loan money to the U.S. government.
(II) When a nation runs a current account deficit due to a merchandise trade deficit, it must also be true that the nation has a surplus on its capital account due to an inflow of foreign capital.

Question

(I)  The U.S. trade deficit is a financial obligation of the federal government, and if it is not paid off, foreigners will be reluctant to loan money to the U.S. government.
(II)  When a nation runs a current account deficit due to a merchandise trade deficit, it must also be true that the nation has a surplus on its capital account due to an inflow of foreign capital.

Quizplus · Accepted Answer

The U.S. trade deficit is not a financial obligation of the federal government; it reflects the difference between imports and exports. A current account deficit is typically offset by a capital account surplus, indicating an inflow of foreign capital.

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