can i have the answer to part b too
k ,
current a/c includes visible + invisible trade( i.e services + physical goods) any factor earning or income
A current account deficit might obviously mean bad for a country as the countries exchange rate may depreciate i.e if it has floating exchange rate. This would be bad for country as the countries exports loose their value. If the country has a fixed exchange rate the government may have to finance the deficit.
It would mean a rise in government expenditure / use of foreign currency reserves/ borrowing from IMF(international monetary fund) or possible long term loans if the deficit is very large. This would be bad 4 a country because they hav to pay intrest & the loan back to borrowed country (again a outflow in long run).
However it shuld be noted that Current account is not the only part in BOP, therefore a deficit in current account might be offset by the other accounts such as capital & financial a/c.
A deficit in a current account account might not be a big problem to a country which has a high currency reserves possibly accumulated from previous surpluses in BOP. so a deficit in one year might may damage thier economy in a miour way or not damage @ all.It also depends for how long the deficit continues if its for a short period of time it might not take the attention of the government as its not such a big problem. Thaugh the BOP is one of the main objectives of the government if a country is expected to face a bop deficit , i.e if the economy is experiencing growth & there is high demand for capital goods/ better technology they may be imported causing a deficit .but they are not bad for the economy in long run.It should alos be noted that consumers may enjoy better living standerds with more imports .
Therefore it could be said that currrent a/c deficit is not a serious problem for the economy as they hav both benifits & disadvantages. It all depends on how much the deficit is & why the deficit occured.
