Author Question: Why do governments prefer to avoid current account deficits that are too large? What will be an ... (Read 55 times)

hbsimmons88 · **on:** Jun 30, 2018

Why do governments prefer to avoid current account deficits that are too large?

What will be an ideal response?

Question 2

For many developing countries, natural resources or agricultural commodities make up ________ share of exports

A) close to no
B) an unimportant
C) an important
D) close a to 5 percent
E) close to a 10 percent

jliusyl · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

A current account deficit may pose no problem if the borrowed funds are channeled into productive domestic investment projects that pay for themselves with the revenue they generate in the future. However, sometimes, large current account deficits represent temporarily high consumption resulting from misguided government policies or some other malfunctioning of the economy. Sometimes, the investment projects that draw on foreign funds may be badly planned, etc. In such cases, the government might wish to reduce the current account deficit immediately rather than face problems in repaying its foreign debt in the future.

Answer to Question 2

C