A current account deficit
A) will not pose a problem, especially if it is accompanied by an expansionary fiscal policy.
B) may pose no problem if the borrowed funds are channeled into productive domestic investment projects that pay for themselves with the revenue they generate in the future.
C) may still pose a problem, even if the borrowed funds are channeled into productive domestic investment projects.
D) There is no relation between current account surplus and between savings and investment.
E) will pose a problem because the country is borrowing funds from the rest of the world that it won't be able to pay back later.

Question

Quizplus · Accepted Answer

A current account deficit may not pose a problem if the borrowed funds are channeled into productive domestic investment projects that pay for themselves with the revenue they generate in the future. However, even if the funds are invested productively, a sustained current account deficit may still pose a problem in the long run.

A Current Account Deficit