Your question:

(3) Suppose all Australian foreign aid is in the form of Australian goods given free to foreign recipient countries but bought by the Australian government. If Australia were to slash its budget for this sort of aid by $1.6b this would, holding all else constant, improve Australia's current account by $1.6b and worsen its financial account by the same amount.

Assignment Help Answers with Step-by-Step Explanation: Aid Reduction Impacts Economy

Scenario: Australia provides foreign aid in the form of Australian goods given for free to foreign countries. The Australian government purchases these goods. If Australia reduces its foreign aid budget by $1.6 billion, what would be the impact on the current account and financial account?

Explanation:

At the same time, the decrease in government spending on foreign aid would decrease the financial account outflows by $1.6 billion.

Result: