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Chapter 10: Q 36. (page 267)

Is it better for your country to be an international

lender or borrower?

Short Answer

Expert verified

To be a lender is better than a borrower generally.

Step by step solution

01

Step 1. Definition

When an economic transaction happens the person who gives money is the lender and the person who borrows or takes it is the borrower of the money.

02

Step 2. Explanation

It is comparably better to be a lender than a borrower. This is because, when a country is a lender, it will experience a trade surplus. When it lends its exports increases capital increases and employment increase as to complete the lending the country must have to employ the persons to produce the required output. The country will also receive interest on its lending amount. So that’s why a lender is in a better position.

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Most popular questions from this chapter

What are the main components of the national savings and investment identity?

If the trade deficit of the United States increases, how is the current account balance affected?

The United States exports 14% of GDP while Germany exports about 50% of its GDP. Explain what that means.

Using the national savings and investment identity, explain how each of the following changes (ceteris paribus) will increase or decrease the trade balance:

a. A lower domestic savings rate

b. The government changes from running a budget surplus to running a budget deficit

c. The rate of domestic investment surges

A government official announces a new policy.

The country wishes to eliminate its trade deficit, but will strongly encourage financial investment from foreign firms. Explain why such a statement is contradictory.
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