The possibility that a government budget deficit will also lead to a current account deficit is an idea sometimes referred to as the twin deficits.

Question

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The statement is true. A government budget deficit can lead to a decrease in national savings and an increase in interest rates, which can in turn lead to a current account deficit as imports become relatively cheaper and exports become relatively more expensive. This phenomenon is known as the twin deficits.

The Possibility That a Government Budget Deficit Will Also Lead