| Trade deficit is possibly affected by which of the following factors? |
| 1. Domestic savings |
| 2. Fiscal deficit |
| 3. Investment in the economy |
| Select the correct answer using the codes given below. |
A) 1 and 3
B) 2 and 3
C) 1 and 2
D) (d) All of these
Correct Answer: D
Solution :
[d] When a country runs a trade deficit, it is important to look at the right side of equation to see whether there has been a decrease in saving, increase in investment or an increase in the budget deficit. There is reason to worry about a country's long-run prospects, if the trade deficit reflects smaller saving or a larger budget deficit (when the economy has both trade deficit and budget deficit, it is said to be facing twin deficits. The deficit could reflect higher private or government consumption.
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