The long-run budget constraint for a nation is:
A) GDP minus taxes to run the government.
B) equal to GDP divided by the population.
C) the level of external debt, offset by the sum of the present value of future trade surpluses taken to infinity.
D) determined by its ability to lure international investment and capital inflows.

Question

Quizplus · Accepted Answer

The long-run budget constraint for a nation is the level of external debt, offset by the sum of the present value of future trade surpluses taken to infinity. This means that a nation's ability to borrow from abroad (external debt) is limited by its ability to generate enough trade surpluses in the future to pay off that debt. Therefore, the long-run budget constraint is determined by the nation's ability to balance its imports and exports and maintain a sustainable level of external debt. Choices A and B do not accurately reflect the long-run budget constraint, and choice D only partially explains one factor that can affect a nation's ability to borrow from abroad.

The Long-Run Budget Constraint for a Nation Is