Question

What are the effects of government deficits on the current account?

Answer 1

There is a strong belief that the government deficit will be leading to the current account deficit of the country because it will mean that the country is investing more into abroad and it is also saving less so it would be leading to to decrease in the overall government surplus leading to a government deficit because the investments which are made outside the country would be impacting the overall cash flows negatively and leading to government deficit which will have a twin effect leading to current account deficit.

so it can be concluded that the government deficit would be leading to a current account deficit as which has been predicted in many economics theories, and it would be leading to a subsequent effect because of decrease in the National savings and investment in abroad .