A ____________ account deficit is financed by net – Answer & Explanation | CUET Subject PYQ – Dubuddy

A ____________ account deficit is financed by net

This question was previously asked in

Shift 11/06/2023 3:30 PM - 6:30 PM

Attempt Online
A
Capital
B
Current
C
Saving
D
Recurring
Correct answer

Correct Answer

Current
Details icon
Detailed Explanation

An account deficit that is financed by net capital flows from the rest of the world, resulting in a capital account surplus, is typically referred to as a (2) Current account deficit.

Here's the explanation:

  1. The current account includes the balance of trade (exports and imports of goods and services), net income from abroad, and net transfers (like foreign aid). When the value of imports exceeds exports and when there's a net outflow of income and transfers, it leads to a current account deficit.
  2.  To finance a current account deficit, a country may attract capital from the rest of the world. This capital includes foreign investment, loans, or other financial inflows. These capital flows are recorded in the **capital account**.

So, a current account deficit is typically financed by net capital flows, resulting in a capital account surplus.

Get Dubuddy App

Practice on the go with our mobile app