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Consider the following action which the Government can take

2011

Consider the following action which the Government can take:
1. Devaluing the domestic currency.
2. Reduction in export subsidy.
3. Adopting suitable policies which attract greater FDI and more funds from FIIs. Which of the following action/actions can help in reducing the Current Account Deficit?

(a)

1 and 2 only

(b)

2 and 3 only

(c)

3 only

(d)

1 and 3 only

Answer:

(d)

Core Books/NCERT

Explanation

Statement 1 is correct: Devaluing the currency makes exports cheaper and reduces CAD. Statement 2 is not correct: Reduction in export subsidy would increase CAD. Statement 3 is correct: Attracting FDI and FII increases foreign exchange inflow, helping reduce CAD.