When a Country Runs a Current Account Deficit to Finance

question 10

Multiple Choice

When a country runs a current account deficit to finance an increase in domestic investment expenditures, it causes

• A)consumption smoothing over time.
• B)the real interest rate to increase.
• C)a government deficit to occur.
• D)taxes to rise.
• E)an increase in capital stock and future productive capacity.

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Definitions:

Firm Commitment

An underwriting agreement in which an underwriter agrees to buy all the unsold shares in an initial public offering (IPO).

Underwriter

A person or institution that assesses and accepts the risk on investments, insurance, or securities, often by buying or guaranteeing them.

Direct Costs

Direct costs are expenses directly tied to the production of a product or service, such as raw materials and labor.

Marginal Tax Rate

The rate of tax applied to the next dollar of taxable income, indicating the percentage of additional income that is taken in taxes.