Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increase in imports leads to a decrease in net exports.
B
Decrease in net exports can result in a current account deficit.
C
Current account deficit may influence foreign investment.
D
Foreign investment can impact domestic economic growth.
Understanding the Answer
Let's break down why this is correct
Answer
When a country increases its imports, it means that it is buying more goods and services from other countries. This rise in imports can lead to a larger trade deficit, which is when a country spends more on foreign goods than it earns from selling its own goods abroad. As a result, the current account balance, which tracks these transactions, starts to show a negative number. For example, if a country imports a lot of electronics from another country but does not increase its exports, it will have to pay more money to foreign sellers, worsening its current account balance. Over time, if this continues, it can lead to economic challenges, as the country may need to borrow money to pay for its imports.
Detailed Explanation
When a country buys more goods from other countries, its exports become less than its imports. Other options are incorrect because Some might think that a drop in net exports doesn't matter; It's easy to think a current account deficit directly affects foreign investment.
Key Concepts
Current Account Balance
Net Exports
Foreign Investment
Topic
Current Account Balance Dynamics
Difficulty
medium level question
Cognitive Level
understand
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