Reducing a current account deficit requires a country to:
A) Increase private saving relative to investment
B) Increase private consumption relative to saving
C) Increase private investment relative to consumption
D) Increase private investment relative to saving

Question

Quizplus · Accepted Answer

In order to reduce a current account deficit, a country must increase its net savings which can be achieved by increasing private savings relative to investment. This will reduce the country's reliance on foreign borrowing and ultimately lead to a decrease in the current account deficit. Option B is incorrect as increasing private consumption relative to saving will lead to an increase in imports and thus a larger current account deficit. Option C is incorrect as it suggests an increase in investment which would not necessarily lead to a reduction in the current account deficit. Option D is incorrect as it suggests an increase in investment relative to savings, which would also not necessarily lead to a reduction in the current account deficit.

Reducing a Current Account Deficit Requires a Country To