Free response question

IEO past paper: 2018 International Economics Olympiad, open questions

During his lecture at Sberbank Corporate University, Ilya Androsov was talking about countries that find themselves in a situation of current account deficit. Background (added for this site; not part of the original paper): In the years before 2018, Turkey ran large current account deficits, financed mainly by borrowing from abroad. Turkish banks borrowed heavily in US dollars and euros, often at short maturities, and lent to local firms both in lira and in foreign currency. Bank credit grew very quickly, and much of the borrowed money financed a boom in housing and commercial construction. In 2018 the lira lost a large part of its value against the dollar, sharply raising the burden of foreign-currency debt.