A high current account deficit can lead to __ .

(a) a strong domestic currency

(b) low interest rates

(c) high inflation

(d) reduction in imports

Ans.(c)

Sol. A higher current account deficit can lead to a higher demand for foreign currency, which can cause the value of the domestic currency to decrease. This can, in turn, lead to higher inflation as the cost of imports increases. This causes higher inflation.

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