When Current Account Deficits Are Used to Finance Investment Spending

question 61

Multiple Choice

When current account deficits are used to finance investment spending, such deficits may be self-correcting because

• A) they promote more responsible government policies.
• B) the resulting increase in the capital stock over time shifts the output supply curve to the right.
• C) the resulting increase in the capital stock over time shifts the output demand curve to the right.
• D) the resulting increase in national indebtedness increases labour demand.
• E) interest rates decline.

---

Definitions:

Financing Charges

Interest and other costs associated with borrowing funds or purchasing goods and services on credit.

ROE

Return on Equity; a financial ratio that measures the profitability of a company in relation to the amount of equity, indicating how effectively shareholder equity is being utilized to generate profits.

Financial Leverage

Employing borrowed funds to amplify the potential gains from an investment, while also elevating the likelihood of incurring losses.

ROA

Return On Assets indicates how efficiently a company utilizes its assets to generate profit, calculated as net income divided by total assets.