Question

Discuss ways to use to support one’s currency if there is a financial/capital account deficit. What problems are there? What are the implications for monetary policy and freedom of capital movements?

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Answer 1

Answer :-

Financial/capital account deficit :- This deficit means that there is a huge outflow of money to other countries. Means we say the outflow of the money from our economy. Its occurance is very infrequent.In the Capital Acccount Deficit a person can increase their holdings in the foreign countries

The ways to use to support one’s currency if there is a financial/capital account deficit are A good monetary policy , Absence of free capital movements , A variable exchange rates.

The Problem in it are Diminshing of jobs which creates unemployment as the money of our economy goes into other countries. One problem is of liquidity . Another problem is of balance of trade etc.

The implications for monetary policy and freedom of capital movements are

It increase the flow of capital And Monetary policy helps in aligned with the international market and similairly freedom of capital helps to create freetrade agreements and also relative freedom from capital control.

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