A. A country's trade in manufactured goods diminished substantially, causing it to lose tax revenue and become a . net borrower of foreign funds. For the next two decades, its government used the borrowed funds to upgrade the .
A. never as there is no economic merit in a policy of running trade deficits
What's Wrong with Being a Net Borrower? Debt financing is an inappropriate way to run a household, a business, a government, or a country, unless the debt burden is carefully and responsibly controlled.
Key Takeaways. A net borrower is any entity that borrows more than it lends out. While it can apply to any business entity, household, individual, or organization, it is most often discussed with regard to governmental entities. Being a net borrow over an extended period of time may run up the risk of accumulating an unsustainable debt burden.
Debt financing is an inappropriate way to run a household, a business, a government, or a country, unless the debt burden is carefully and responsibly controlled. A household that borrows beyond its means may end up losing its house; a business that is highly leveraged may find it difficult to pursue growth opportunities when the economy is strong or may find itself in a financially distressed state when the economy is weak; a government or a nation that carries a heavy debt burden will expose itself to rising interest expenses on its debt and more costly refinancings when it is time to roll over debt maturities; and, perhaps more importantly, a country that places itself in heavy debt to other countries may severely weaken its strategic position vis-a-vis other world powers.
Because many business entities both borrow and loan funds through various financial instruments and other means, it is the net difference between the amount borrowed and lent that is important and determines whether one is a net borrower or net lender.
If revenues fall short of expenditures, the government must borrow mainly by means of issuing debt. At the federal level, the government does have money in its treasury and it also holds a portfolio of debt assets for investments, but since its issuance of debt is greater than these combined, it is a net borrower. 1
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A. A country's trade in manufactured goods diminished substantially, causing it to lose tax revenue and become a . net borrower of foreign funds. For the next two decades, its government used the borrowed funds to upgrade the .
A. never as there is no economic merit in a policy of running trade deficits