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

Question

Quizplus · Accepted Answer

Persistent current account deficits can make sense if the associated foreign borrowing is used to finance increased productive capacity. This means that the borrowed funds are being used to invest in projects or industries that will generate future economic growth, making it easier to pay off the debt in the future. Reducing personal income taxes, lowering government interest rates, reducing the capital account surplus, or ensuring that government budgetary debt is not growing may have some impact on the economy, but are not directly related to the rationale behind a persistent current account deficit.

Persistent Current Account Deficits Make Sense If