Explain How Government Deficits Fell Yet Current Account Surpluses Remained

question 47

Essay

Explain how government deficits fell yet current account surpluses remained the same in the EU prior to adopting the euro.Also explain this in the context of the "twin deficits" theory.

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Definitions:

Disbursement Basis

An accounting method in which expenditures and revenues are recorded when cash is actually disbursed or received, rather than when they are incurred.

Accrual Basis

An accounting method where income and expenses are recorded when they are earned or incurred, regardless of when the cash transaction happens.

GAAP Constraint

Guidelines that restrict or limit certain accounting practices under Generally Accepted Accounting Principles, to ensure fairness, consistency, and accuracy in financial reporting.

Disbursement Basis

Accounting method where expenses are recorded when cash is paid out, rather than when incurred.