The ability of the United States to run current account deficits
A)can be seen as a vote of confidence in the strength of the U.S.economy.
B)causes persistent declines in investment in the United States.
C)causes U.S.investors to accumulate more foreign assets than foreign investors accumulate U.S.assets.
D)will eventually cause the value of the dollar to rise.
E)is the result of ultra low interest rates in the rest of the world.

Question

Quizplus · Accepted Answer

Current account deficits can be viewed as a sign of confidence in a country's economy, as it signals that foreign investors have faith in the country's ability to repay debts and generate a return on investment.

Answer: C
 When the United States runs a current account deficit, U.S. investors accumulate more foreign assets than foreign investors accumulate U.S. assets. This is because the deficit is financed by foreign investment in the United States, which increases the supply of foreign currency and drives down its value relative to the U.S. dollar.

Answer: E
 Ultra-low interest rates in other parts of the world, particularly in Europe and Japan, have contributed to the ability of the United States to run current account deficits. These low rates have reduced the cost of borrowing for U.S. companies and individuals, making it easier for them to consume more and invest more, which in turn drives demand for foreign goods and services.

The Ability of the United States to Run Current Account