Persistent current account deficits make sense if
A) the capital account surplus is reduced.
B) government interest rates go down accordingly.
C) if the associated foreign borrowing is used to finance increased productive capacity.
D) if personal income taxes are reduced.
E) if 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 invested in projects or initiatives that will generate income and contribute to economic growth in the future, making it easier to pay back the loan. In this scenario, the deficits can be seen as an investment rather than a problem. A, B, D, and E are not necessarily related to the logic behind a persistent current account deficit.

Persistent Current Account Deficits Make Sense If