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Explain the association of the current account deficit with the budget deficit in an open economy....

Explain the association of the current account deficit with the budget deficit in an open economy. Discuss the implications of each for the other.

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Answer #1

Current account deficit leads to trade deficit where the value of the goods imports is exceeds than the value of the product exports. Now, due to the budget deficit in an open economy it will reduced exports and increase imports, which will make the current account deficit worse.

If the situation continued for further then there will be large national debt and current account deficit and eventually goes out of control and lead to economic crisis..

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