help question.. (1 Viewer)

[we0426]

hay can some one plzz answer this question 4 me....

Explain how fiscal policy could be used by a government to reduce a deficit on the current account?

i mean is it coz higher taxation well lead to lower cosumption thus lowering the import level and improving the balance on goods and services and there fore lowering the deficit on da current account!!!!!!!!!!!!!!!!!!!!!!!!!!

i mean is the reason or im totally wrong..

ur help well be apreciated..thanks heapssssss

 

[we0426]

any one plzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz

 

[gnrlies]

hay can some one plzz answer this question 4 me....

Explain how fiscal policy could be used by a government to reduce a deficit on the current account?

i mean is it coz higher taxation well lead to lower cosumption thus lowering the import level and improving the balance on goods and services and there fore lowering the deficit on da current account!!!!!!!!!!!!!!!!!!!!!!!!!!

i mean is the reason or im totally wrong..

ur help well be apreciated..thanks heapssssss

to be honest the CA is not usually something that governments consider when implementing fiscal policy, but your analysis is correct. Contractionary fiscal would reduce the CAD via the imports channel, and would reduce the governments demand for domestic savings (or the surplus increases adding to savings) which would eliminate to some extent the need to borrow from overseas.

But as you can probably infer it would be rather stupid to slow down the economy to stop rational consumers importing. Perhaps balancing the budget to eliminate the governments contribution to the CAD would be advisable in the long run, but certainly slowing the economy would be replacing one problem with another (with the new problem arguably being worse than the former)

 

[we0426]

thanks a lot man..i know what u mean ..this question was so confusing when i was doing past papers i was like wtff..i never learnt how fiscal policy would effect CAD..but in some way on another it does...

thanks man..