When economists refer to twin deficits, they are referring to a budget deficit linked with a(n) ______ deficit.

Question

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Twin deficits refer to a situation where a government has a budget deficit (spending more than it collects in taxes) and a current account deficit (importing more goods and services than it exports). The link between the two deficits is that the government may need to borrow from foreign countries to finance its spending, which increases the demand for foreign currency and causes the currency to depreciate. This makes imports more expensive and exports cheaper, leading to a current account deficit.

When Economists Refer to Twin Deficits, They Are Referring to a Budget