ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A It will decrease aggregate supply.
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B It will decrease the money supply.
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C It will increase aggregate demand.
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D It will increase the exchange rate.
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Detailed explanation-1: -There are certain negative effects of the current account surplus. Sometimes a high share of goods and services is exported outside rather than meeting the demand of the home country. This leads to a major fall in the supply side of the economy, leading to a rise in prices.
Detailed explanation-2: -A current account surplus means an economy is exporting a greater value of goods and services than it is importing. A country with a current account surplus will have a deficit on the financial/capital account.
Detailed explanation-3: -The pernicious effect of inflation on the current account deficit is clear. So what can be done to control inflation? One reason for high inflation is consumption growth, partly the result of a large fiscal deficit. Containing the deficit will, therefore, restrain inflation.
Detailed explanation-4: -A current account deficit occurs when a country sends more money abroad than it receives from abroad. If the nation receives more money from abroad than it sends, it has a current account surplus.