The large budget deficits of the early 1990s resulted in large current account deficits.

Question

Quizplus · Accepted Answer

Large budget deficits do not directly result in large current account deficits. The relationship between budget deficits (fiscal policy) and current account deficits involves several factors including savings and investment dynamics, exchange rates, and the state of the global economy. A budget deficit can contribute to a current account deficit if it leads to increased domestic consumption and lower national savings, leading to higher imports, but the two are not directly causative.

The Large Budget Deficits of the Early 1990s Resulted in Large