An inflow of capital and a trade deficit are more dangerous when

Question

An inflow of capital and a trade deficit  are more dangerous  when

Quizplus · Accepted Answer

When the inflow of capital is used to finance current consumption and/or channeled into unproductive projects, it does not contribute to long-term economic growth and can lead to a buildup of debt. This coupled with a trade deficit can create instability in the economy and have negative effects in the future. In contrast, if the inflow of capital is channeled into private investment, it can lead to job creation and long-term growth. Therefore, B is the correct answer as it highlights the risks associated with misallocation of capital inflows.

An Inflow of Capital and a Trade Deficit Are More Dangerous When