If there is a steep fall in gold and oil prices, which among the following should be expected on macroeconomic level?
[A]Decrease in current account deficit
[B]Increase in current account deficit
[C]Increase in capital account deficit
[D]Decrease in capital account deficit
Decrease in current account deficit
When there is a steep fall in gold and oil prices, it would provide a relief to India’s external sector in the form of a decrease in current account deficit. This is because fall in prices in these sectors would ease the pressure on payments in foreign currency. However, it is not true for all economies of the world. While India is positively affected, the same can cause negative impact on few economies in the world such as Oil and Gold exporters. The rise and fall in these two commodities also has profound implications on balance of payments, inflation, monetary policy and interest rates, Forex rates, fiscal position, and consumption and savings, etc.