- 20 Marks
MFS – OCT 2022 – L2 – Q7 – Policies for Current Account Deficits
Recommend policies for persistent current account deficits in non-free market exchange regimes.
Question
Governments of developing countries like Ghana show extreme worry when current account deficits on balance of payments either keep increasing their foreign debts or running down their reserves, or both. In an economy that operates an exchange rate regime outside the free market system, if the deficit persists over time;
a) What policy will you recommend that invariably affects domestic exchange of its currency?
b) What other effective alternative policy is available to solve re-occurring current account deficits?
(20 Marks)
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