Exercise 14 Determine if the following statements are correct, incorrect, or uncertain. Justify your answer.

a. In a situation where a country chooses to go into debt, such deterioration in its welfare would occur that it is not beneficial for it to go into debt. In other words, Thomas Fuller was correct when he said, “Debt is the worst poverty.”

Chapter 4 • What Is the Optimum Current-Account Level? 101

b. According to the intertemporal current-account determination models, it is desirable for an emerging country to accumulate deficits in current account.

c. Consider a country that, initially, is at full employment and presents a large current account deficit. If this country desires to implement an economic policy with the objective of reducing the probability of undergoing a balance of payment crisis, it will, necessarily, need to alter its level of consumption and investment.