Question

A ___________________________________ can lead to disruptive economic
patterns and heavy strains on a country's banking and financial system.

A. prolonged period of trade surpluses
B. sustained pattern of large trade deficits
C. prolonged period of budget surpluses
D. sustained pattern of large budget deficits

Answer 1

Answer:

These are the options for the question:

• A. prolonged period of trade surpluses
• B. sustained pattern of large trade deficits
• C. prolonged period of budget surpluses
• D. sustained pattern of large budget deficits

And this is the correct answer:

• D. sustained pattern of large budget deficits

Explanation:

Running budget deficits over a long period of time can be very harmful for a nation's economy.

The country will have to use a big part of tax revenue to pay for the debt, and the debt could be issued in foreign currency, exposing the country to currency risks, for example, if the country pays most of its debt in U.S. dollar and the dollar appreciates against the home currency, the debt will become more expensive.

Besides, all the tax revenue sent to debt payments is money that could have been spent on investments or social programs.