How can a trade deficit actually increase the productivity of an economy?
1. by causing people to save
2. by building up a large amount owed
3. by importing funds used for capital deepening
4. by importing goods for short–term use
I think 1, can anyone verify?
To determine the correct answer, let's evaluate each option:
1. "By causing people to save": This answer is not accurate. A trade deficit typically occurs when a country imports more goods and services than it exports. It does not directly lead to increased savings.
2. "By building up a large amount owed": This option also does not accurately describe how a trade deficit can increase productivity. When a country runs a trade deficit, it means that it is borrowing from other countries to finance its imports, resulting in a financial obligation. However, this does not directly contribute to increased productivity.
3. "By importing funds used for capital deepening": This option is correct. A trade deficit can lead to the inflow of foreign funds, which can be used to invest in capital deepening. Capital deepening occurs when a country invests in technology, machinery, equipment, and infrastructure to enhance productivity. These imported funds can be used to improve productivity and increase the overall efficiency of an economy, contributing to economic growth.
4. "By importing goods for short-term use": This option is not accurate. Importing goods for short-term use does not directly increase productivity in the long run.
Therefore, the correct answer is option 3: "By importing funds used for capital deepening."