A) High current account deficit and high fiscal deficit.
B) High capital account deficit and high fiscal deficit.
C) High current account deficit and high capital account deficit.
D) high budget deficit and high fiscal deficit.
Correct Answer: A
Solution :
[a] Economies that have both a fiscal deficit and a current account deficit are often referred to as having "twin deficits." Higher twin deficit is inherently destabilizing and was the primary reason why India faced a currency crisis back in 1991. Higher current account deficit means higher demand for foreign currency, which results in depreciation of the domestic currency. It also discourages capital inflow and leads to capital flight from the country. Higher fiscal deficit, apart from affecting savings and growth, affects business confidence.
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