Macroeconomics question. An article in GulfNews.com noted that in September 2012

Question

Macroeconomics question.

An article in GulfNews.com noted that in September 2012 the Indian government of Prime Minister Manmohan Singh made "urgently needed reforms to reduce the fiscal deficit and attract foreign investment to help the current account deficit and growth."

1) Could there be a connection between India's fiscal budget deficit and its current account deficit? Explain.

2) How would attracting foreign investment help the current account deficit and economic growth?

3) Given the difficult fiscal budget situation in the U.S., is there any foreign policy action that could help reduce the federal debt?

Explanation / Answer

Answer:- Fiscal budget deficit can be seen as the difference in the government revenues and government expenditures. When revenuers are lesser than the expenditures, it results in fiscal deficit.

While when there is an imbalance in the imports and exports, it is reflected by the current account deficit.

Both the terms are related with each other as by controlling the current account deficit, the government can earn greater revenue and thus control the fiscal deficit.

Answer:- When foreign investment is attracted it will result in increasing investment in the economy and it will boost the exports. The foreign investment bring the foreign expertise , technology, managerial skills and money in the economy which will help the country to advance economically.

Answer:- As USA s having its army in different countries, various naval and military bases around the world , these can be reduced to minimum possible to save the revenue. Apart from this the government can use many fiscal and monetary policy to improve the financial debt issue.

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