ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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private firms borrowing from overseas
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The RBA buying Australian dollars on the foreign currency markets
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a fall in interest rates in Australia
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All of the above
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Detailed explanation-1: -In a floating currency, a current account deficit must be offset by a finance or capital account surplus.
Detailed explanation-2: -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.
Detailed explanation-3: -Many economists believe that the most effective way to reduce the current-account deficit is by reducing domestic spending or “absorp-tion” relative to income by increasing the national saving rate.
Detailed explanation-4: -Understanding a Current Account Deficit The country can also use monetary policy to improve the domestic currency’s valuation relative to other currencies through devaluation, which reduces the country’s export costs.