Multiple Choice QuestionWhat is the result for the United States when the sale of U.S. goods and services abroad is significantly lower than its purchase of imported goods and services?Multiple choice question.The current account experiences a surplus.Foreign debt decreases.Official reserves expand.Foreign debt increases.
Question
Multiple Choice QuestionWhat is the result for the United States when the sale of U.S. goods and services abroad is significantly lower than its purchase of imported goods and services?Multiple choice question.The current account experiences a surplus.Foreign debt decreases.Official reserves expand.Foreign debt increases.
Solution
The correct answer is "Foreign debt increases."
Here's why:
When the U.S. buys more goods and services from other countries than it sells to them, it runs a trade deficit. To finance this deficit, the U.S. borrows from foreign countries, which increases its foreign debt.
So, if the sale of U.S. goods and services abroad is significantly lower than its purchase of imported goods and services, the U.S. would need to borrow more from foreign countries, leading to an increase in foreign debt.
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