An economy is experiencing a persistent deficit on the current account of its balance of payments. Which one of the following combinations of economic circumstances is most likely to lead to a reduction in this current account deficit?
| Output gap | Exchange rate of the domestic currency | Domestic inflation relative to competitor nations | |
|---|---|---|---|
| A | Negative | Appreciating | Rising |
| B | Positive | Appreciating | Rising |
| C | Negative | Depreciating | Falling |
| D | Positive | Depreciating | Falling |
Negative output gap, Appreciating exchange rate, Rising domestic inflation
Positive output gap, Appreciating exchange rate, Rising domestic inflation
Negative output gap, Depreciating exchange rate, Falling domestic inflation
Positive output gap, Depreciating exchange rate, Falling domestic inflation
