ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Government can reduce substantial current account deficit by increasing exports or by decreasing imports which can be through import restrictions, quotas, or duties or by subsidizing exports. Manipulating of exchange rate for cheaper exports tends to increase balance of payments through devaluing of domestic currency.

Detailed explanation-2: -The current account deficit is an important signal of competitiveness and the level of imports and exports. A large current account deficit usually implies some kind of disbalance in the economy, which needs correcting with the depreciation in the exchange rate and/or improved competitiveness over time.

Detailed explanation-3: -Measuring the current account A deficit then means that the country is importing more goods and services than it is exporting-although the current account also includes net income (such as interest and dividends) and transfers from abroad (such as foreign aid), which are usually a small fraction of the total.

Detailed explanation-4: -Devaluation of exchange rate (make exports cheaper – imports more expensive) Reduce domestic consumption and spending on imports (e.g. tight fiscal policy/higher taxes) Supply side policies to improve the competitiveness of domestic industry and exports. 28-Jul-2019