Understanding Trade Deficits and Current Account Financing
6 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is a consequence of financing a trade deficit by selling off assets?

  • Increase in foreign claims against South African assets (correct)
  • Decrease in foreign claims against South African assets
  • Reduction in South Africa's official reserves
  • No impact on foreign claims against South African assets

    • What is a potential benefit of a large surplus on the financial account?

  • Reduced foreign lending to South African firms
  • More rapid increase in South Africa's production capacity (correct)
  • Increased foreign ownership of domestic assets
  • Reduced production capacity in South Africa

    • What is a consequence of a current account deficit for South Africa?

  • Increase in South Africa's claims against foreign assets
  • Increase in both its debt to people abroad and the value of foreign claims against assets in South Africa (correct)
  • No impact on South Africa's debt to people abroad
  • Decrease in South Africa's debt to people abroad

    • When can South Africa regain ownership of its domestic assets that have been sold to foreigners?

    <p>When it exports more than it imports</p> Signup and view all the answers

    What is a potential cost of current consumption gains delivered by current account deficits?

    <p>Permanent debt, permanent foreign ownership or large sacrifices of future consumption</p> Signup and view all the answers

    Why is a trade deficit considered unfavourable?

    <p>It must be financed by borrowing from the rest of the world, selling off assets, or dipping into official reserves</p> Signup and view all the answers

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser