In the short run, a trade deficit allows more consumption, but in the long run, a trade deficit is a problem because:
A)the country eventually will consume more and produce less.
B)the country eventually will sell all its financial assets to foreigners.
C)the domestic currency will appreciate.
D)the country eventually has to produce more than it consumes in order to pay foreigners their profits.

Question

Quizplus · Accepted Answer

In the long run, a trade deficit means that a country is borrowing from abroad to finance its consumption, leading to an accumulation of debt. Eventually, the country will need to produce more than it consumes to repay this debt, including the profits owed to foreign investors.

In the Short Run, a Trade Deficit Allows More Consumption