Persistent current account deficits make sense if
A) the capital account surplus is reduced.
B) government interest rates go down accordingly.
C) the associated foreign borrowing is used to finance increased productive capacity.
D) personal income taxes are reduced.
E) the government budgetary debt is not growing.

Question

Quizplus · Accepted Answer

Persistent current account deficits can be sustained if the associated foreign borrowing is used to invest in increased productive capacity, which can generate greater economic growth and future income streams to repay the debt. This is often the case for developing countries where there is a need to invest in infrastructure, education, and technology to improve their competitiveness in the global market. Choices A, B, D, and E are not directly related to addressing the issue of persistent current account deficits.

Persistent Current Account Deficits Make Sense If