Briefly Discuss the Idea of "Twin Deficit

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The Answer is The twin deficit idea is that the budget deficit is the primary cause of current deficit. Therefore, if government runs a budget deficit, we should expect to see the current deficit as well. The evidence on twin deficit is mixed. Although twin deficit can be observed in some periods of the Canadian and the U.S. budget deficit and current account data, it is not evident in some other periods. In addition, the opposite has occurred in Japan. Therefore, some economists doubt that there is a correlation between the two deficits. The Ricardian equivalence hypothesis is not consistent with the twin deficit. According to the Ricardian equivalence hypothesis, a deficit caused by a tax cut will lead to higher saving and, therefore, will not lead to any deficit in the current account.

Briefly Discuss the Idea of "Twin Deficit

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Briefly Discuss the Idea of "Twin Deficit

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Correct Answer:VerifiedShow Answer

Correct Answer:
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