Question

A country implements policies that are expected to increase taxes by €100 million, increase government spending by €50 million, and reduce investments and private sector savings by €25 million each.
As a result, the country's current account balance will most likely:

A. increase by €50 million.
B. decrease by €50 million.
C. increase by €100 million.

Answer 1

Answer:

A) Increase by 50 million

Explanation:

A is correct.

Below is the current account balance calculation

CA = Sp -I + (T-G- R)

CA stands for Current account balance

Sp stands for Private sector savings

I is Investments, T = Taxes

G represents government spending's, whereas R = Transfers

CA = -25-(-25) + ( 100-50-0 ) = 50, increase by 50 million euro