The key lesson from the LRBC model is:
A) nations can safely run trade deficits as long as they can cover the interest each year.
B) nations must balance their current account year by year.
C) nations must maintain a balance between the present value of deficits and the present value of surpluses that satisfy the LRBC.
D) nations may lend externally but it is dangerous to borrow.

Question

Quizplus · Accepted Answer

The LRBC model suggests that nations must maintain a balance between the present value of deficits and the present value of surpluses that satisfy the LRBC. This means that while a nation may run a trade deficit in a given year, it must have a plan to eventually pay off that deficit, either through increased exports or decreased imports. This approach emphasizes the importance of long-term sustainability in trade balances rather than short-term fluctuations.

The Key Lesson from the LRBC Model Is