Question

Which of the following is false?

a. current account deficits must be financed through inflows of capital.
b. borrowed funds are always used in a manner that contributes to the expansion of the country's productive capability.
c. loans from abroad add to a country's stock of external debt and generate debt service.
d. debt service can become an unsustainable burden that holds back development.

Answer 1

The false statement among the given options is that borrowed funds are always used in a manner that contributes to the expansion of the country's productive capability.

Step-by-step explanation:

The false statement among the given options is b. borrowed funds are always used in a manner that contributes to the expansion of the country's productive capability. While it is ideal for borrowed funds to be used for productive purposes, it is not always the case. As mentioned in the reference, some countries have borrowed heavily but failed to invest in productive economic assets, leading to trouble and no economic growth to show for the borrowed funds. Therefore, borrowed funds are not always used in a manner that contributes to the expansion of the country's productive capability.