External financing allows the economy to consume beyond its production possibilities temporarily.
The debt held by foreign households and institutions is known as the external debt.At the time the debt is sold externally,there are no opportunity costs.Instead of having to move along the production possibilities curve,external borrowing allows us to move from a point on the production possibilities curve to beyond it.

Question

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External financing enables an economy to temporarily consume more than it produces by borrowing resources from abroad, thus allowing it to operate beyond its production possibilities curve.

External Financing Allows the Economy to Consume Beyond Its Production