When Nations Continue to Experience Large and Ever-Growing Trade Deficits

question 115

Multiple Choice

When nations continue to experience large and ever-growing trade deficits:

• A)they will ultimately produce so much output that other countries will lose domestic jobs.
• B)creditor nations will eventually stop taking IOUs and trade will cease.
• C)their economy will automatically go bankrupt.
• D)their currencies will eventually be worthless.

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Definitions:

Porter's Diamond Model

A framework for analyzing the competitive advantage nations or regions possess due to four key factors: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry.

Competitive Potential

Refers to the capacity of a company or industry to compete effectively in the market and expand its market share.

Industries

Broad categories that encompass various companies and organizations involved in the production of goods and services in specific areas of the economy.

Infant Industry Theory

A theory which states that certain emerging industries need to be protected and nurtured for a period of time or they will be unable to compete against established foreign firms.