Question

8. Consider an increase in a country's current account deficit. Which of the following statements best describes the desirability of this change?:

		A) It might be desirable depending on the cause of the change.
		B) It is desirable regardless of the cause of the change.
		C) It is undesirable regardless of the cause of the change.
		D) It is not desirable if it is caused by an increase in domestic investment.
		E) It is desirable if it is caused by a reduction in the level of private saving.

Answer 1

• Option A is the answer.
• It might be desirable depending on the cause of the change.
• A current account deficit is the difference between total export of goods and services and total import of goods and services in a country. A deficit is said to be happen when the amount of import activities are greater than the amount of export activities. Usually, imports are not that good for a country's development . But, Current account deficits are desirable for certain countries such as under developed countries which need foreign investment to uplift their growth. America is an example for a country running on current account deficit and who has attained benefits out of it. So it can be said that current account deficits are desirable depending on the situations.