Current Account Deficit and Long-Term Investment

Steps:

• Identify the deficit as a current account deficit, where imports exceed exports.
• Recognize that a deficit often means borrowing from abroad to finance imports.
• Evaluate if those imports support future growth, like capital goods for production.
• Determine the long-run benefit from enhanced productivity outweighing short-term imbalances.

Why B is correct:

• Importing capital goods (machinery, equipment) boosts productive capacity, increasing future output and exports per the investment-led growth model.

Why the others are wrong:

• A: Immigration affects labor supply but does not explain deficit benefits.
• C: Exporting raw materials improves the current account, reducing deficits.
• D: Unemployment reduction is a short-term effect, not a long-run deficit rationale.

Final answer: B