Economic theory tells us that countries that grow faster than the global economy as a whole should run a trade
[ Select ]
surplus
deficit
, but some of them do not. What do (at least some of) the countries that violate this "rule" have in common?

They have
[ Select ]
rapidly growing populations
rapidly aging populations
high birth rates
and therefore they save
[ Select ]
more
less
then they invest.

Question

Economic theory tells us that countries that grow faster than the global economy as a whole should run a trade 
[ Select ]
surplus
deficit
 , but some of them do not. What do (at least some of) the countries that violate this "rule" have in common?

They have 
[ Select ]
rapidly growing populations
rapidly aging populations
high birth rates
 and therefore they save 
[ Select ]
more
less
 then they invest.

BlackTom AI · Accepted Answer

Countries with faster productivity growth tend to attract foreign capital, so they should run a trade deficit.

Relevant concepts: the current account (trade balance) equals national saving minus investment (CA = S − I). If a country attracts foreign capital because its returns are high (due to faster growth), that implies capital inflows and a current-account deficit. Conversely, if S > I the country runs a surplus.

Step-by-step reasoning:
1. Theory: High growth → higher expected returns on domestic investment → foreigners want to invest there → net capital inflow → current-account deficit. Thus economic theory predicts fast-growing countries should run trade deficits.
2. Observation: Some fast-growing countries do not run deficits. To explain this, examine S − I. If national saving is unusually large relative to investment, S − I can be positive even when growth is high.
3. Demographics and saving: Rapidly aging populations (a rising share of older cohorts relative to dependents, after a long period of working‑age accumulation) often raise national saving rates — through private life‑cycle accumulation, precautionary saving for health/retirement, or policy responses (e.g., fiscal surpluses to pre-fund pensions). Higher S raises S − I and can produce a current-account surplus despite fast GDP growth.
4. Therefore countries that violate the “should run deficits” rule often share rapidly aging populations and high aggregate saving that exceeds investment.

Why the other choices are incorrect:
- Rapidly growing populations and high birth rates generally raise dependency ratios and lower per‑capita saving (young households consume more), which would tend to reduce S and make deficits more likely — not explain a surplus.
- High birth rates are a form of a rapidly growing population; they likewise tend to reduce, not increase, national saving.

Conclusion: Economic theory predicts a trade deficit for fast‑growing countries, and the correct fill for the first blank is “deficit,” matching the provided answer.

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