The large trade deficits in the United States in the 1990s were primarily associated with a rise in domestic investment rather than a rise in the budget deficit.

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Quizplus · Accepted Answer

This statement is true. Trade deficits occur when a country imports more goods and services than it exports, which can be caused by various factors such as a decline in competitiveness, a rise in consumer demand, or a rise in domestic investment. In the 1990s, the US experienced a large trade deficit, but it was mainly driven by a surge in domestic investment in productive assets such as factories, equipment, and real estate. This led to an increased demand for imported capital goods and raw materials, which surpassed the value of US exports. The budget deficit, on the other hand, refers to the difference between government spending and revenue and has a more limited impact on the trade balance.

The Large Trade Deficits in the United States in the 1990s