14. Consider a country in the two-period analysis of trade imbalances experiencing a trade deficit in period I and no GNP growth between the two periods. Assuming that the country finances its trade deficits through borrowing in period I and repaying the entire loan in period 2 and the extra funds in period I are not directed into domestic investment, which of the following will be observed? a. The average standard of living in the country in period 2 will decline. b. The average standard of living in the country in period I will decline. c. The average standard of living in the country in period 2 will improve. d. The average standard of living in the country in period I will remain unaffected. e. The average standard of living in the country will remain stable over the two periods.

14. Consider a country in the two-period analysis of trade imbalances experiencing a trade deficit in period I and no GNP growth between the two periods. Assuming that the country finances its trade deficits through borrowing in period I and repaying the entire loan in period 2 and the extra funds in period I are not directed into domestic investment, which of the following will be observed? a. The average standard of living in the country in period 2 will decline. b. The average standard of living in the country in period I will decline. c. The average standard of living in the country in period 2 will improve. d. The average standard of living in the country in period I will remain unaffected. e. The average standard of living in the country will remain stable over the two periods.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter23: The International Trade And Capital Flows

Section: Chapter Questions

Problem 44P: Imagine that the U.S. economy finds itself in the following situation: a government budget deficit...

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