Question

Consider the following actions which the Government can take:

1. Devaluing the domestic currency.
2. Reduction in the export subsidy.
3. Adopting suitable policies which attract greater FDI and more funds from FIIs.

Which of the above action/actions can help in reducing the current account deficit?

• A.
  1 and 3
• B.
  2 and 3
• C.
  3 only
• D.
  1 and 2

Answer 1

The correct option is A

1 and 3
Devaluing domestic currency and adopting policies suitable to attract FDI and FII will help attract dollars thus reducing CAD. Reduction in export subsidy will lead to increase in the cost of exports leading to making them less competitive.