Export Subsidies Boost Current Account

Steps:

• Subsidies reduce machinery costs, lowering overall production expenses for export goods.
• Lower costs enable firms to offer exports at competitive prices internationally.
• This increases export volumes and revenues, improving the trade balance.
• The trade balance forms the core of the current account in the balance of payments.

Why B is correct:

• Export subsidies enhance net exports (exports minus imports), reducing the current account deficit as defined in balance of payments accounting, where the current account records trade in goods and services.

Why the others are wrong:

• A: Capital account tracks financial asset transfers, unaffected by export subsidies.
• C: No impact on capital account, which involves investments and loans, not trade.
• D: Subsidies improve, rather than worsen, the current account by boosting exports.

Final answer: B