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Q. Why do governments prefer to avoid current account deficits that are too large?
Answer: A current account debit may possibly pose no problem if the borrowed funds are channeled into productive domestic investment projects that pay for themselves with the revenue they generate in the future. Though sometimes large current account deficits represent temporarily high consumption resulting from misguided government policies or some other malfunctioning of the economy occasionally the investment projects that draw on foreign funds may be badly planned and so on. In such cases the government strength wish to reduce the current account deficit immediately rather than face problems in repaying its foreign debt in the future.
Q. Why do governments prefer to avoid current account deficits that are too large? Answer: A current account debit may possibly pose no problem if the borrowed funds
in a mixed economy, the government tries to help meet the needs of the public on a limited basis
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Q. Use a figure to study the effects of a change in market belief with regard to the fixed exchange rate, in particular assume market participants expect the government to devaluat
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