Why do governments prefer to avoid current account deficits, International Economics

Assignment Help:

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.


Related Discussions:- Why do governments prefer to avoid current account deficits

Supply and Demand, Assess the supply and demand of international reserves. ...

Assess the supply and demand of international reserves. Discuss the major determinants of the demand for international reserves: 1.) the monetary value of international transaction

Line distinguishing between external and internal goals, Q. "The line disti...

Q. "The line distinguishing between external and internal goals can be fuzzy."  Discuss. Answer: True For instance employment target for export industries when export growth m

Describe forms of capital inflow to finance external deficit, Q. Describe a...

Q. Describe alternative forms of capital inflow to finance external deficits and explain why these methods were used in different times? Answer: The capital inflows to facili

Free trade, what are the limitations of net barter terms of trade

what are the limitations of net barter terms of trade

Interest rate differential according to the ppp theory, Q. Describe and exp...

Q. Describe and explain the relationship between expected inflation rates in two countries and their interest rate differential according to the PPP theory. Answer: Expected p

Compare currency board to conventional fixed exchange rate, Q. Compar...

Q. Compare currency board to conventional fixed exchange rate? Answer: Currency board mayn't acquire domestic assets and therefore cannot lend currency freely to domesti

What if the taste bias favored the imported good, Q. One of the usually us...

Q. One of the usually used assumptions in deriving the Heckscher-Ohlin model is that tastes are homothetic, or that if the per capita incomes were the similar in two countries, th

Intra industry trade, what is the diffrent between inter-industry trade and...

what is the diffrent between inter-industry trade and intra industry

Strategies of globalization and regionalization, Describe the strategies of...

Describe the strategies of globalization and regionalization and explain when each strategy can be used effectively.  Give examples of successful companies that have followed each

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd