Question

A country running persistent current account deficit and high inflation will ________ ans why?

A tend to have an appreciating currency.

B. tend to also have a persistent capital account deficit.

C. experience fiscal governmental budget deficit roughly equivalent to the current account deficit.

D.tend to have a depreciating currency E none of the above.

Answer 1

Higher current account deficit and high inflation would tend to have depreciating currency. Option d is correct option.

Higher current account deficit causes imports to be more than exports.Since imports are high the demand for foreign currency will be more and demand for local currency will be less. This will cause currency in depreciate.
High inflation causes currency to depreciate as per inflation rate parity. As per this higher the inflation lower is the value of currency.