Evaluate whether the following statements are true or false, and explain our ans

Question

Evaluate whether the following statements are true or false, and explain our answer.
a. A trade deficit occurs when the government spends more than it receives in tax revenue.
b. in an open, mixed economy, the equillibrium level of GDP occurs when planned saving equals planned investment.
c. An increase in interest rates in the rest of the world will lead to stronger dollar.
d. Under a fixed exchange rate sstem with global capital flows, monetary policy is ineffective. However, under a flexible exchange rate system, monetary polic is typically more effective than fiscal polic increasing real GDP.

Explanation / Answer

a.A trade deficit occurs when a country imports more than it exports. Therefore teh country is not making enough goods and services to exchange for the goods and services it buys from overseas. Hence it has to sell assest to finance today's spending. This can be buildings, or can be bonds. Bonds are promised to pay a certain amount of money over time, basically are like a loan you take from the buyer with promise of interest. So when the US runs a trade deficit with China, it issues Bonds to China prmoising to repay the loan, also known as the debt the US owes China.

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