What measures can a government take to correct a current account deficit ?
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Answer: A. Reduce the deficit on the balance of trade
Explanation
The current account is primarily driven by trade balances, so reducing a trade deficit helps. Improving the balance of trade directly addresses the largest component of the current account. Exporting more and importing less strengthens the overall current account deficit position. The current account includes the balance of trade, net income abroad, and net transfers. A current account deficit occurs when a nation spends more abroad than it earns. Macroeconomic adjustments require aligning national savings and domestic investment balances.
Governments implement fiscal and exchange rate policies to correct persistent current account deficits. International investors monitor current account balances to assess country financial health. Trade negotiations often target bilateral trade deficits to improve macroeconomic accounts. Reduce the repayment of loans affects capital financial flows rather than current accounts directly. Reduce the surplus on the capital account would worsen overall external balance adjustments. Reduce the volume of exports would increase rather than correct a current account deficit.
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