Asked by Godwin Grimes on Jun 07, 2024
Verified
Most of the money that we pay to foreigners to finance our current accounts deficit
A) flows back to the U.S.in investment funds.
B) stays abroad where it circulates as currency.
C) ends up in the hands of drug dealers.
D) is used by foreign governments as reserves.
Current Accounts Deficit
A measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.
- Apprehend the movement of the current account balance and the contributors to its variation.
- Elucidate the major drivers behind the balances of capital and current accounts.
Verified Answer
AN
Aleka Nicole
Jun 13, 2024
Final Answer :
A
Explanation :
Foreigners who hold dollar-denominated assets resulting from the current accounts deficit have two choices: They can either invest the money back in the US, or they can exchange it for their own currency. When they invest in the US, they buy shares of companies, bonds issued by the government, and other financial instruments. Therefore, most of the money that we pay to foreigners to finance our current accounts deficit flows back to the US in the form of investment funds.
Learning Objectives
- Apprehend the movement of the current account balance and the contributors to its variation.
- Elucidate the major drivers behind the balances of capital and current accounts.