The idea of 'twin deficits' refers to the possibility that a large federal budget deficit will lead to a:
A)balance of payments deficit.
B)financial account deficit.
C)trade surplus.
D)current account deficit.

Question

Quizplus · Accepted Answer

Twin deficits refer to the simultaneous occurrence of large government budget deficits and current account deficits. The current account deficit is a measure of a country's net trade balance with the rest of the world, which includes exports and imports of goods and services, as well as income flows and transfers. A large budget deficit can lead to a decrease in national savings and an increase in borrowing, which can in turn lead to a higher current account deficit as the country borrows more from foreign creditors to finance its consumption and investment. Therefore, the best choice is D, current account deficit.

The Idea of 'Twin Deficits' Refers to the Possibility That