Question

checking

7. During the 1980s, the United States experienced "twin deficits” in the current account and government budget. Since 1998 the U.S. current account deficit has grown steadily along with rising government budget deficits. Do government budget deficits lead to current account deficits? Identify other possible sources of the current account deficits. Do current account deficits necessarily indicate problems in the economy?

Answer 1

Twin deficit indicates an inspiration that a government budget might result in a accounting deficit and a twin deficit happens once a nation's government is defrayal extra money than it's generating.It is not clear that a government budget deficits results in accounting deficits and there area unit another factors that influence the present account deficits.The doable sources of the present account deficits are:

a)Private savings will cause impact on the present account. once a government changes the charge per unit, it'll end in the amendment of personal savings conjointly. Suppose the govt. decreases tax rates, then households can answer a tax cut nowadays by increasing their savings. this means that non-public savings can increase, therefore compensatory the result on national savings.

b) Changes in investment is additionally another risk to occur accounting deficits. a rise in domestic investment opportunities could lead on to accounting deficits.

Current account deficit might indicate a economy that is apace growing. A accounting deficit is useful to the borrowing nation within the short run. Hence, accounting deficits not essentially indicate issues within the economy.