Answer to Question #89538 in Macroeconomics for Anjalin

Question

Can a nation fund its investments at a level higher than that currently provided by its income? Explain.

Answer 1

In general, in the short term, a country can finance such investments by obtaining bank loans, loans or gold and foreign exchange reserves. However, in the long run, the nation is not capable of conducting such an investment policy, as it can lead to significant budget deficits and default.